Lasso Your Financials

Category: Farm Financials, Farm Business Planning | No Comments

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agrisolutions 15 things to know about farm finances ebook

Financial paper charts and graphs on the table

I sold my beans this morning for just over $13/BU. Time will tell if this was a smart decision. I already know that writing last summer that we should be prepared for corn in the $3 somethings for the next several years is now a source of embarrassment to me. Seems like the only things I know for sure are the things that sit in the past. Unfortunately, the business decisions I have to make later today and tomorrow are not in the past and may embarrass me once more.

I remember talking to a plant manager in Fort Payne, AL a little over 25 years ago who said, “what motivates me, is I hate being embarrassed.” He wanted to know before his superiors, suppliers, customers, and employees that he had accurate information, sound logic, and adequate preparation at all times. This was his source of motivation, and while not everyone cares about being embarrassed, perhaps there is some “take home” value to his words.

Consolidate your financial entities and statements.

For good reason, few farmers today operate in a single entity. Not only do today’s full-time farms operate with more complex entity structures; they also operate with greater scale and complexity than farms of the past. The scale and complexity expose the farmer to potential embarrassment unless steps are taken to ensure through adequate preparation that accurate information and defensible logic are in place at all times. One necessary preparatory step is consolidating the financial statements from all the various entities back together.

To really get your arms around your financials requires two steps: 1) consolidating financial entities, and 2) learning how to interpret financial statements for yourself. Unfortunately, farm accounting is confounded with the vagaries of weather, markets, valuations, timings and long cycles. It is really hard to get an understanding of your financial position by analyzing one financial statement over one year, you have to look at a consolidated statement from multiple years of your financials to accurately analyze your position. This is not to say that some lenders or even owners won’t try to assess performance through a simple year-end balance sheet, but the good manager – the one wanting accurate information, sound logic, and adequate budget preparation at all times – cannot afford such an off-the-cuff assessment.

Get a better picture of your financial position.

Really effective management information can be pulled from multiple years of incomes statement (P&L) and balance sheet (Statement of Net Worth). For todays farms this is easier said that done. Even with a simple structure of a single operating entity and two or three entities holding the assets, there might be ten (10) pieces of paper if you were to print out the financials for a given year. Across five (5) years that would be 50 pieces of paper. You could spread those pages out on the floor and look at them all at once, but likely not easily absorb the whole picture. The right thing to do is to consolidate them into a single income statement and a single balance sheet for each year. Now you might have three (3) or four (4) pages for each of the five (5) years totaling 15-20 pages. This could now fit on a table and be studied more easily, but still challenging. The right answer is a single page. This is also helpful if you are applying for an agricultural loan.

For the last 30 years, AgriSolutions has worked with farms of all complexities to get the financial picture down to one (1) page. You can get accurate information from that one page because it contains income statement and balance sheet perspectives across multiple years from all your entities properly consolidated. This will help you make sound, logical decisions about capital projects, growth, and risk management from that one page because it demystifies financial analysis. You can become a better business manager because you are adequately prepared for the problems, opportunities, changes and threats that the future will bring your way. Our Historical Performance Analysis™ (HPA) will enable you to “own” your financials like a pro.

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Written By

Sam Bachman

Sam Bachman

Business Analyst sbachman@agrisolutions.com

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