Through marketing poultry farms, we get the opportunity to review farm’s financial information. This will include income, expenses, and mortgage payments. Often times we advertise a Gross Income for a farm. Sometimes there is confusion on Gross Income versus Net Income. Past that many buyers may ask “What will my Net Income be for this farm?”. Most of the time as an agent we cannot answer that question. Net incomes will be a moving target that is based mainly on the lenders assignment or minimum payment. Then management styles from producer to producer will differ greatly. That will result in variables in expenses like Power, Water, and Gas for Heating.
Gross Income refers to the total amount that the producer is paid from the Integrator. This will be the amount stated on the IRS Form 1099 issued at the end of the tax year. Every penny paid to the producer will be reflected on the 1099. From the gross income, in most cases, the producer will pay Power, Water, Heating Gas, Maintenance, Insurance, Labor, and other expenses related to owning a farm. The bulk of the Gross Income will be paid to the lender in the form of an assignment payment. Depending on the type of farm, the lender involved, and the buyer’s financial status, assignments can range from 45-65% of the Gross Annual Income. If the farm produces $200,000 of Gross Annual Income and the lender has a 50% assignment, the producer will pay around $100,000+/- in principal and interest annually. The remaining $100,000.00 is the amount the producer will pay the production expenses from. There are no set percentages that will accurately calculate the expenses for a farm. Each farm and producer will operate at different levels of expense. For example if the total annual expenses for the farm were 30%, that would be $60,000 in expenses. The Net Income will be $40,000.00. These are just examples to give you an idea of how to figure the Net Income.
When it comes to taxes there are multiple factors that a producer can use to lower their taxable income level. We encourage everyone to seek the guidance of an experienced accountant.
Please feel free to contact me if you have any questions about the cash flow of a farm. We will provide you the information we have about a farm. We can also refer you to a qualified group of lenders that can discuss your situation and the farm you are considering.