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How to Build a Stronger Balance Sheet During Profitable Years

A profitable year creates opportunity, but it does not automatically strengthen thebusiness.That depends on how the results are managed.For agricultural operations, strong years can either improve the overall financial position orsimply pass through with little long-term impact. The difference comes down to howintentionally those years are used. Why the Balance Sheet Matters More Than …

A profitable year creates opportunity, but it does not automatically strengthen the
business.

That depends on how the results are managed.

For agricultural operations, strong years can either improve the overall financial position or
simply pass through with little long-term impact. The difference comes down to how
intentionally those years are used.

Why the Balance Sheet Matters More Than It Gets Credit For

During a strong year, most of the focus goes to the income statement. Revenue is up,
margins improve, and the operation feels productive.

But the balance sheet is what carries that performance forward.

It reflects liquidity, debt levels, and how much flexibility the business has going into the
next cycle. Those factors often matter more than a single year of profitability, especially in
an industry where conditions can change quickly.

A strong balance sheet gives the operation room to adjust. A weak one limits options, even
after a profitable year.

Using Strong Years to Improve Position, Not Just Results

When margins improve, there is usually more flexibility in how cash is used.

Some of that will go toward taxes, operating costs, and reinvestment. Beyond that, there is
an opportunity to improve how the business is structured financially.

That might not feel urgent in a strong year, but it tends to have the most lasting impact.

Debt Reduction Should Be Measured, Not Reactive

Reducing debt is often one of the first considerations, and for good reason.

Lower leverage can improve financial ratios, reduce interest expense, and create more
room in future cash flow. It can also strengthen the business’s position with lenders.

At the same time, using too much cash to accelerate debt reduction can create a different
kind of pressure. Liquidity still needs to support the operation through the cycle.

The goal is not to eliminate debt as quickly as possible. It is to manage it in a way that
supports both stability and flexibility.

Cash Reserves Are What Carry You Between Cycles

Strong years can create a false sense of consistency.

In agriculture, that rarely holds. Weather, input costs, and commodity pricing can shift
quickly, and those changes tend to show up in cash flow before anything else.

Building reserves during profitable years helps offset that variability. It allows the operation
to absorb changes without immediately relying on short-term borrowing or making rushed
decisions.

Reserves are not idle. They are what give the business time and options when conditions
change.

Capital Purchases Still Need to Make Sense

Capital spending tends to increase during profitable years, especially when tax planning is
part of the conversation.

That is not necessarily a problem, but the decision still needs to stand on its own.

Equipment and infrastructure should improve efficiency, support production, or address a
real operational need. If the primary driver is reducing taxable income, it is worth taking a
step back.

A purchase that does not fit the long-term needs of the operation can create more pressure
later, even if it provides a short-term tax benefit.

Working Capital Is Often Overlooked

A stronger balance sheet is not just about long-term assets and liabilities.

Working capital plays a central role in how the business functions day to day. Improving
liquidity during strong years can make a noticeable difference in how the operation handles
seasonal demands.

That may involve increasing current assets, reducing short-term obligations, or simply
being more intentional about how cash is managed throughout the cycle.

Ignoring this area often leads to the same situation many operations face, where
profitability improves but cash still feels tight.

The Impact Shows Up Over Time

Balance sheet strength is not built in a single year.

It comes from consistent decisions over multiple cycles. Profitable years provide a better
opportunity to make those decisions, but the benefit comes from how they carry forward.

Operations that use strong years to improve their position tend to have more flexibility
when conditions tighten. They are better positioned with lenders, more comfortable
managing cash flow, and more prepared to take advantage of opportunities when they
arise.

Where DBC Can Help

At DBC, these conversations usually happen after a strong year when the focus starts to
shift from performance to positioning.

The question is not just how the operation performed, but what that performance changed.
Did it improve liquidity, reduce risk, or create more flexibility going forward?

If the answer is unclear, it is worth taking the time to step back and walk through the
balance sheet in detail. That process often leads to more deliberate decisions and a
stronger position going into the next cycle.

This article provides general tax and accounting insights and is not intended as advice
specific to your organization or a substitute for personal consultation. We do not provide
legal advice. Because every organization’s circumstances are unique, we encourage you to
consult with your legal, tax, or accounting advisor regarding your specific situation.

Working Capital Management for Agricultural Operations: Why Profitability Does Not Always Mean Liquidity

A strong year on paper does not always translate into a comfortable cash position.This is one of the more common disconnects we see in agricultural operations. The incomestatement shows solid profitability, but there is still pressure around paying bills, managingoperating lines, or making timely input purchases.That gap usually comes down to working capital. Profit …

A strong year on paper does not always translate into a comfortable cash position.

This is one of the more common disconnects we see in agricultural operations. The income
statement shows solid profitability, but there is still pressure around paying bills, managing
operating lines, or making timely input purchases.

That gap usually comes down to working capital.

Profit Tells One Story, Cash Tells Another

Profitability measures performance over a period of time. Working capital reflects what the
operation has available to meet its short-term obligations.

In the agriculture sector, those two rarely move in sync.

Revenue is often realized at specific points in the production cycle, while expenses are
ongoing. Seed, fertilizer, fuel, labor, and land costs are typically paid well in advance of
harvest or sale. That timing alone can create a meaningful difference between reported
income and available cash.

Layer in other factors and the gap can widen:
• Inventory that has value but is not yet converted to cash
• Prepaid expenses that reduce near-term liquidity
• Receivables that are slower to collect than expected
• Scheduled debt payments that require cash regardless of timing
• Capital purchases that absorb cash or increase borrowing

None of these are unusual. In fact, they are part of running a successful operation. The
issue is how they stack up at the same time.

How Working Capital Pressure Builds

Working capital challenges rarely show up as a single event.

More often, these issues build gradually. After a strong production year, an operation may
be carrying higher inventory, while input costs continue to rise and expansion requires
more upfront spending. At the same time, revenue may not come in quickly enough to
offset those demands.

From the outside, the business still looks profitable. Internally, it can feel tight.

That is when reliance on operating lines increases, vendor balances stretch, or decisions
become more reactive than planned.

Where to Look First

When liquidity feels strained, the first step is not to focus on profit. It is to walk through how
cash is actually moving.

That typically means reviewing:

• The timing and collection of receivables
• Inventory levels and how quickly they turn
• The structure and timing of payables
• Debt obligations and repayment schedules
• The seasonality of large expenses

This is less about theory and more about how the operation functions day to day.

Aligning Working Capital with the Production Cycle

Every agricultural operation has a rhythm. Cash flows out at certain points and comes back
in at others.

Working capital should be managed with that cycle in mind.

That may involve adjusting the timing of input purchases, restructuring short-term debt, or
building additional liquidity ahead of heavier spending periods. It may also mean
recognizing that a profitable year will not automatically resolve cash flow challenges if the
underlying structure is not aligned.

Growth Changes the Equation

Growth often increases pressure on working capital.

Adding acres, expanding herds, or increasing production typically requires more cash
before additional revenue is realized. If working capital is not adjusted alongside that
growth, the business can become more constrained even as it becomes more profitable.

This is where planning becomes important. Growth decisions should consider not just
expected returns, but also how they will be funded in the short term.

Why This Matters

Working capital is not a single line on the balance sheet. It directly drives the success of
day-to-day operations.

When liquidity is in a good position, there is more flexibility in how decisions are made.
Timing purchases, managing debt, and responding to changes becomes more
manageable. When liquidity is tight, even routine decisions can start to feel constrained,
and the margin for error narrows.

That is why profitable years can still feel challenging. The business may be performing well,
but if cash is not moving in a way that supports the operation, it creates unnecessary
pressure.

At DBC, we often see this when the numbers and the day-to-day reality do not quite line up.
Profitability is there, but cash still feels tight. In most cases, that points back to how
working capital is structured and managed.

If that is happening in your operation, it is worth taking a closer look now. Walking through
where cash is tied up, how it is moving, and how it aligns with your production cycle can
surface practical adjustments. Addressing it early tends to make the rest of the year easier
to manage and can put your agriculture business in a more stable position going forward.


This article provides general tax and accounting insights and is not intended as advice
specific to your organization or a substitute for personal consultation. We do not provide
legal advice. Because every organization’s circumstances are unique, we encourage you to
consult with your legal, tax, or accounting advisor regarding your specific situation.

Rising Land Values Are Creating New Challenges for Farm Estate Planning

Strong farmland values have been a positive development for many agricultural operations, but they are also creating new challenges for farm families planning for the future.As land values continue to reach record levels in many areas, producers face a difficult question: How can assets be distributed fairly among heirs without creating an unsustainable financial …

Strong farmland values have been a positive development for many agricultural operations, but they are also creating new challenges for farm families planning for the future.

As land values continue to reach record levels in many areas, producers face a difficult question: How can assets be distributed fairly among heirs without creating an unsustainable financial burden for the next generation of farmers?

While every family’s situation is different, focusing solely on current market value may not always lead to the best outcome for the long-term success of the farm.

Below are several important considerations when evaluating farmland as part of an estate and transition plan.

Fair Does Not Always Mean Equal

Many farm families want to treat all heirs fairly. However, fairness and equality are not always the same thing.

When farmland represents the majority of a family’s wealth, dividing assets equally can create significant challenges for the heir who intends to continue farming.

If a farming heir is required to purchase land from siblings at full market value, the resulting debt load can dramatically affect profitability, cash flow, and the future viability of the operation.

Estate planning discussions should consider not only today’s asset values, but also whether future generations can realistically support the financial obligations created by those decisions.

Consider the Long-Term Future of the Farm

One of the most important questions in any transition discussion is whether the family wants to keep the farm together.

If preserving the operation is a priority, then the focus should extend beyond simply determining what the land is worth today. Families should also consider what ownership structure will allow the operation to remain successful after the transition occurs.

In some situations, shared ownership among siblings may work well. In others, it may create operational challenges or differing expectations that become difficult to manage over time.

Evaluating these possibilities early can help families avoid future conflicts and create a smoother transition process.

Affordability Matters

Current land values may not reflect what a farming operation can realistically support.

When estate plans require a farming heir to buy out siblings at full market value, annual debt payments can quickly become substantial. Even highly successful operations may struggle to absorb large buyout obligations while continuing to invest in equipment, inputs, labor, and growth opportunities.

A transition plan should consider the operation’s projected cash flow, profitability, and long-term sustainability. The goal is not simply transferring ownership. The goal is ensuring the farm remains financially healthy after the transfer occurs.

Other Assets May Help Balance the Plan

Many farm families use a combination of assets to create a more balanced estate plan.

Life insurance, retirement accounts, investment assets, and other nonfarm property can sometimes help offset differences in farmland distribution. This approach may reduce the financial burden placed on the farming heir while still providing meaningful value to nonfarming heirs.

Every family situation is unique, but exploring multiple options often creates greater flexibility and better outcomes for all parties involved.

Communication Is Critical

Conversations about estate planning are not always easy, but delaying them often creates more challenges later.

Open discussions about family goals, financial realities, and expectations can help reduce misunderstandings and create a stronger foundation for future decision-making. When family members understand both the emotional and financial considerations involved, they are often better positioned to work toward solutions that support both family relationships and business continuity.

Planning Beyond Today’s Land Values

Record land prices can make estate planning decisions more complicated, but they should not dictate the entire conversation.

The most successful transition plans balance current asset values with long-term business sustainability, family objectives, and the future needs of the next generation. By focusing on affordability and operational success rather than simply maximizing asset values, families can often create plans that better support both the farm and the people involved.

At DBC, we work closely with agricultural families to navigate farm succession planning, ownership transitions, estate considerations, and long-term financial strategies. Thoughtful planning today can help preserve both family relationships and the future success of the operation for generations to come.

To read the original article by Myron Friesen, please visit https://www.agriculture.com/don-t-let-record-land-prices-derail-your-farm-estate-plan-11940991

This article provides general tax and accounting insights and is not intended as advice specific to your organization or a substitute for personal consultation. We do not provide legal advice. Because every organization’s circumstances are unique, we encourage you to consult with your legal, tax, or accounting advisor regarding your specific situation.

Checking Your Federal Refund Status Is Easy

As you are no doubt aware, the IRS has made a significant shift in its approach to issuing  tax refunds by discontinuing the practice of sending refunds via paper checks. This change is part of an ongoing effort to enhance efficiency and security in processing tax returns. By moving towards electronic transfers, the IRS …

As you are no doubt aware, the IRS has made a significant shift in its approach to issuing  tax refunds by discontinuing the practice of sending refunds via paper checks. This change is part of an ongoing effort to enhance efficiency and security in processing tax returns. By moving towards electronic transfers, the IRS aims to reduce the risk of lost or stolen checks, expedite the refund process, and minimize costs associated with printing and mailing. The IRS has implemented alternative methods to accommodate taxpayers who do not have a bank account such as prepaid debit cards. 

Regardless of the delivery method, if you have already filed your federal tax return and are due to receive a refund, you can check the status of your refund online.

Where’s My Refund?  is an interactive tool on the IRS website.

Regardless of whether you have split your refund among several accounts or opted for a direct deposit into one account, Where’s My Refund? will give you online access to your refund information nearly 24 hours a day and 7 days a week.

If you e-file, you can use this tool to get your refund information 24 hours after the IRS acknowledges receipt of your return. Nine out of 10 taxpayers typically receive refunds in fewer than 21 days when they use e-file with direct deposit. If you file a paper return, refund information will be available starting four weeks after mailing your return. When you go to check the status of your refund, have a copy of your federal tax return handy. To access your personalized refund information, you must enter:

  • Your Social Security Number (or Individual Taxpayer Identification Number),
  • The tax year (options include 2025, 2024 and 2023),
  • Your filing status on that return (single, married filing jointly, married filing separately, head of household, or qualifying widow(er)/surviving spouse), and
  • The exact refund amount shown on your tax return.

Once you have entered your personal information, one of several personalized responses will come up:

  • Acknowledgement that your return has been received and is being processed,
  • Refund was approved and the IRS is preparing to issue it by the date shown.
  • Refund Sent – the IRS has sent the refund to your bank or to you in the mail. It may take 5 days for it to show in your bank account or several weeks for your check to arrive in the mail. 

Where’s My Refund?  also includes links to customized information based on your specific situation. The links guide you through the steps to resolve any issues that are affecting your refund. For example, if you do not receive your refund within 28 days of the mailing date shown on Where’s My Refund?, you can start a refund trace online.

Where’s My Refund? is also accessible to visually impaired taxpayers who use the Job Access with Speech screen reader with a Braille display. Where’s My Refund? is compatible with various modes of this screen reader.

IRS2Go is a free IRS smartphone app that lets taxpayers check on the status of their tax refunds. For download information, visit IRS2Go. It is available for both Apple and Android.

Where’s My Refund? provides the most up-to-date information that the IRS has. There’s no need to call the IRS unless Where’s My Refund? tells you to do so. Where’s My Refund? is updated every 24 hours (usually overnight), so you only need to check it once a day.

While the IRS tools provide helpful, real-time updates, DBC is available to assist if you encounter any issues or have questions along the way. We can help review your refund status, address delays or discrepancies, assist with initiating a refund trace if needed, and interpret any IRS notices you may receive.

In addition, we can provide guidance on how your refund fits into your overall tax situation, including applying it toward estimated payments or future planning strategies. If anything seems unclear or does not align with expectations, please reach out so we can help ensure everything is resolved efficiently.

Sold Your Home Before Meeting the Gain Exclusion Requirements? You May Still Qualify for a Partial Exclusion

When selling a principal residence, taxpayers turn to Section 121 of the Internal Revenue Code to mitigate potential capital gains taxes. Under this provision, homeowners can exclude up to $250,000 of gain ($500,000 for qualifying joint filers) from the sale. To fully qualify, individuals must have owned and lived in the home as their …

When selling a principal residence, taxpayers turn to Section 121 of the Internal Revenue Code to mitigate potential capital gains taxes. Under this provision, homeowners can exclude up to $250,000 of gain ($500,000 for qualifying joint filers) from the sale. To fully qualify, individuals must have owned and lived in the home as their primary residence for at least two out of the five years preceding the sale date. However, life sometimes unfolds in ways that prevent individuals from satisfying the full requirements for this lucrative exclusion. Thankfully, the IRS provides relief through partial exclusions for those who need to sell their home due to a change in the place of employment, health issues, or unforeseen circumstances before meeting the two out of the five years standard requirement. This article delves into understanding how these exceptions operate, offering insights into when taxpayers can still benefit from a Section 121 gain exclusion despite not meeting the standard criteria.

Change in Place of Employment – The most common reason for a partial exclusion is a job-related move that causes the taxpayer to sell their home before the 2-of-5 years tests were met. To meet the “safe harbor” for this category, your new place of work must be at least 50 miles farther from your home than your old workplace was. If you didn’t have a previous workplace, your new one must be at least 50 miles from the home you are selling.

Who does this apply to? Crucially, this condition does not just apply to the taxpayer. You may qualify for the partial exclusion if the change in employment affects:
  • The taxpayer.
  • The taxpayer’s spouse.
  • A co-owner of the home.
  • Anyone else for whom the home was their primary residence.

Health-Related Moves – A move is considered health-related if the primary reason is to obtain, provide, or facilitate the diagnosis, cure, mitigation, or treatment of a disease, illness, or injury. It also covers moving to provide medical or personal care for a family member. Note that a move for “general health and well-being” (e.g., moving to a warmer climate just because you like it) does not qualify; a doctor must generally recommend the change in residence.

Who does this apply to? The health condition is broad. It applies if the health issue affects a “qualified individual,” which includes:
  • The taxpayer, spouse, or co-owner.
  • Family members, specifically parents, grandparents, stepparents, children (including adopted, foster, or stepchildren), grandchildren, siblings, in-laws, aunts, uncles, nephews, and nieces.
  • Any resident of the home.

Unforeseen Circumstances – An “unforeseen circumstance” is an event you could not have reasonably anticipated before purchasing and occupying the home. If your situation does not fit a specific safe harbor, the IRS looks at factors like whether the event and sale were close in time, or if your financial ability to maintain the home was materially impaired. But merely deciding after you’ve lived in a home for a while that you don’t like the neighborhood won’t qualify as an unforeseen circumstance.

The Safe Harbor List – The IRS provides a specific list of events that automatically qualify as unforeseen circumstances:

  • Involuntary conversion (e.g., the home is destroyed or condemned).
  • Natural or man-made disasters or acts of terrorism resulting in a casualty loss.
  • Death of a qualified individual (taxpayer, spouse, co-owner, or resident).
  • Divorce or legal separation.
  • Eligibility for unemployment compensation.
  • Change in employment status that leaves the taxpayer unable to pay basic living expenses (food, housing, taxes, etc.).
  • Multiple births from the same pregnancy.

How the Partial Exclusion is Calculated – The partial exclusion is not a flat rate; it is a fraction of the maximum exclusion ($250,000 or $500,000).

  • The Formula – You take the shortest of the following periods (in days or months) and divide it by 730 days (or 24 months):
  1. The time you owned the home during the 5-year period before the sale.
  2. The time you used the home as your primary residence during that same period.
  3. The time since you last claimed the Section 121 exclusion for another home.

Example: If you are a single filer who lived in your home for 12 months before moving for a new job 100 miles away, and had last claimed the exclusion 6 years ago, you have met 50% of the 24-month requirement. You can exclude $125,000 (50% of $250,000) of your gain from taxes.

Navigating IRS Section 121 can be complex, especially when determining if your specific “facts and circumstances” meet the threshold for an unforeseen event. If you are planning a move or have recently sold a home before reaching the two-year mark, please contact DBC for assistance in calculating your exclusion and ensuring your documentation meets IRS standards.

About us

De Boer, Baumann & Company provides professional accounting, tax, and business advisory services to individuals and businesses in West Michigan and the surrounding areas. With expertise in a variety of industries, DBC specializes in comprehensive and innovative solutions to help clients achieve their financial goals.