Most farm businesses are disciplined about tracking what lenders and accountants ask for. They closely monitor acres, yields, equipment values, inventories and cash flow. They review balance sheets annually, sometimes quarterly, and often use those documents to demonstrate financial strength.
Yet some of the most important drivers of long-term success — and failure — rarely appear anywhere on a farm’s financial statements.
At the 2026 Executive Program for Agriculture Producers, commonly known as TEPAP, one theme became clear: Many of the risks that derail farm businesses are invisible to traditional financial reports. Farms that want to remain viable across generations must also start paying attention to key metrics that don’t show up on the balance sheet.
Frozen capital
Frozen capital is money tied up in assets due to a mindset of constant reinvestment to defer taxes. New equipment, additional improvements or accelerated depreciation may reduce taxable income in the short term, but they can also lock capital into assets that are difficult to unwind.
Over time, this can paralyze a business. When capital is frozen, farms may lack flexibility to pursue new opportunities, respond to downturns, or fund retirement. The irony is that strategies designed to “save” money on taxes can in the long run hurt the business in the form of opportunity costs.
put it bluntly, “Don’t spend a dollar to save 20 cents.” Tax strategy should support business strategy, not shape it.
Deferred tax liabilities
Deferred tax liabilities represent future taxes owed on unrealized gains, such as appreciated land, machinery, or other assets. While equity may look strong on paper, a significant portion of that value may be subject to future taxation.
These liabilities are rarely listed directly on a farm balance sheet. At best, they may be mentioned in passing — when noted at all. Yet they can dramatically impact retirement planning, buyouts, succession transitions and estate outcomes.
One recommendation is to make it a standard practice to report deferred tax exposure. Perform annual partner valuations that clearly separate value created from after-tax profits versus unrealized gains subject to future tax. Even a simple footnote at the bottom of the balance sheet acknowledging deferred tax exposure can change how families think about net worth.
Human capital
Human capital refers to the people who run the business — their skills, engagement, role clarity and ability to work together. It includes family members, non-family employees and leadership capacity.
Unlike machinery, people don’t depreciate on a schedule, but burnout, turnover and unresolved conflict can quietly drain value from an operation. Many farms struggle not because of poor production, but because expectations are unclear, roles overlap or accountability is lacking.
Surveys show that even among highly progressive operations, only a minority have written job descriptions, performance reviews or formal management systems. That gap represents both risk and opportunity. Investing in human capital doesn’t show up as an asset on the balance sheet — but it often determines whether the balance sheet improves or deteriorates over time.
ROR: Return on relationships
Return on Relationships may be the most overlooked metric in agriculture. Yet research links the quality of strong relationships — not net worth — as the single biggest factor influencing happiness in retirement and family harmony in farm transitions.
Trust, communication and alignment among owners, family members and key employees directly affect decision-making, succession and continuity. One quote that sticks with me is: “Uncertainty fuels anxiety. And anxiety, left unmanaged, breeds conflict.”
Conflict itself is not the enemy. Unmanaged conflict is.
Common relationship risks include lack of agreement on future direction, unclear ownership and management transition plans, inadequate retirement funding, weak buy-sell agreements and misaligned compensation philosophies. None of these appear on a balance sheet — until it’s too late.
See the whole picture
Financial statements remain essential tools. But they tell only part of the story. Farms that want to transition successfully from one generation to the next must look beyond what is easy to measure.
Frozen capital limits flexibility. Deferred tax liabilities can delay retirement. Weak human capital hurts workplace culture. Poor relationships erode trust and continuity.
The most successful farm businesses recognize that numbers matter but what really matters doesn’t show up on the balance sheet.
Downey has been consulting with farmers, landowners and their advisors for nearly 25 years. He is a farm business coach and manager of succession planning at UnCommon Farms. Reach Mike at mdowney@uncommonfarms.com.