By OMAFRA Ag Rep Brian Bell
Business decisions are made with accurate financial data
Most farm managers understand the importance of good records. This is especially true in times of tight profit margins. Most farmers do a good job of keeping records of income and expenses. These records may, however, not contain sufficient information, which will allow for a complete business analysis. The weak link in the record-keeping chain often relates to the failure to record non-cash information such as inventories, physical information such as feed consumption, keeping track of payables, receivables and credit and loan balances. Completing a year-end inventory is necessary for any meaningful business analysis. Farm business managers must get into the habit of taking inventories at the end of each year.
A true financial snapshot of the business must include inventory adjustments.
Inventory information is important for business analysis and participation in agriculture programs such as AgriStability and AgriInvest. Good farm records are also of great value when it comes time to prepare a farm business plan. Historical records, both production and financial, provide a foundation for the business plan and give the projected plan credibility in that the past results are consistent with the present situation and future expectations. A business plan builds on the past experience and projects forward the planned business activity. Having the projected results consistent with the past experience gives the business plan a higher degree of certainty and a better chance of success. Of course, bookkeeping does not boost yield or determine price; it can however give us early warning when the market place takes a negative turn. We cannot be immune to downturns, but we can give ourselves best chance to recover from them.
The early recognition of a problem in conjunction with reasoned cash-flow projections demonstrating its resolution provide the springboard for recovery. Not surprisingly bankers will be more supportive of the borrower who has a realistic plan for future repayment than for the borrower whose figures are too good to be true. Projections should be based on fairly conservative budget estimates and/or industry standards.
