Financial Processes to Make Your Farm More Efficient and Profitable
Financial processes are the means by which an organization’s resources are directed, monitored, and measured. They play an important role in ensuring accurate reporting, eliminating the potential for fraud and protecting the organization's resources—both physical and intangible. These procedures and controls reduce variation, creating more predictable efficient outcomes. When developing your financial management system, it’s helpful to identify certain principles, such as consistency, accountability, transparency, integrity, and financial stewardship, to guide you.
Consider the following steps for optimizing your farm’s financial processes:
- Establish a clear segregation of duties between accounts receivable and accounts payable and between check writing and check signing.
- Limit system access to appropriate personnel.
- Reconcile bank statements, credit card statements, etc. to the general ledger on a monthly basis.
- Designate a central point of contact for all incoming mail.
- Hire an outside accountant to assist with and review financials.
- Strive to ensure that funds are disbursed only upon proper authorization of management, for valid business purposes, and that all disbursements are properly recorded.
- Require a match of the invoice, purchase order, return credit documents, and receiving documents before releasing payment to a vendor.
- Ensure that stock is appropriately secured and access is restricted to appropriate personnel.
- Require only the owner signature on all check disbursements.
Both raw inputs and harvested grains are valued assets that require processes and procedures. For inventory, consider these practices:
- Ship or receive inventory only with proper authorization and documentation, properly recorded, and appropriately safeguarded.
- Receive inventory only with a valid purchase order.
- Verify all inventory receipts for quantity and condition against the bill of lading and packing slip.
- Record all inventory receipts on pre-number receiver forms or log.
- Detail timelines and responsibilities in policies and procedures governing inventory.
- Ensure your inventory is appropriately secured.
- Periodically conduct book-to-physical or cycle counts to validate inventory and its condition.
- Ensure that management reviews and reconciles the receipts log to system receipts daily.
- Require management review and approval of inventory write-offs.
- Record all shipments in a log that management reviews and reconciles to the system daily.
It’s important to ensure that you record, consolidate, and accurately and timely report your financial data in compliance with US GAAP. In order to accomplish this, implement policies and procedures for the financial closing process that details timelines, responsibilities, and actions to be taken, and establish a budgeting and forecasting process that incorporates trend analysis.
It's useful to have an idea of how comparable businesses approach similar issues. Benchmarking, whether basic or more detailed, offers an additional perspective that can spark new ideas of how to make your business more efficient.
Evaluating your financial processes allows you to make better informed decisions based on actual (or projected) farm performance. Implementing an effective farm record-keeping system aids in planning and analysis of both production and financial records. No single financial management system suits every organization, but getting some good basic financial management practices in place will give you greater control of your operation and help you get the most out of your available resources.
If you need help setting up your financial procedures, the expert consultants at AgriSolutions, a FamilyFarms Company, can help you define your current situation and your farm business’ specific needs. Rather than taking over your financial management, our goal is to help you get a better handle on how to implement best management practices.