When it comes to your financial statements, nothing will pay off more than educating yourself.
Before making any financial decisions…
“An investment in knowledge pays the best interest.” – Benjamin Franklin
For many producers, financial statements are just forms that are part of the requirements they have to go through once a year to satisfy their lender and the IRS. They are viewed as end-of-the-year exercises, which are then underutilized as an important management tool. An objective of financial statements is to assist in improved decision making.
By having adequate, accurate, and timely information, which is then reviewed by Management monthly (or at least quarterly), Management can:
- Identify and learn from the results of past decisions;
- Identify strengths and weaknesses;
- Spot opportunities;
- Take more timely and appropriate action to correct problems or capitalize on opportunities.
- Determines how much you’re worth and how much would be left if you liquidate your assets and paid all your liabilities, including the taxes that would result from the transactions.
- Shows values of year-end accrual assets and liabilities essential for making the accrual adjustments to accurately measure profitability on the income statement.
- Helps you gauge ability to bear risk; that is, how much of an operating loss or decrease in asset values you could withstand and still continue to operate.
- Provides information for year-to-year comparisons to identify trends in the financial position and structure of the business.
ACCRUAL ADJUSTED INCOME STATEMENT
- Determines the actual profit or loss generated by the business during a specific period of time, matching revenues and expenses with the period.
- Helps analyze the contribution of different enterprises to overall profits or losses.
- Provides a tool for evaluating operating efficiency on an economic basis.
- Avoids the possible distortion created by cash basis income statements which can result in lags of 2 to 3 years in recognizing either losses or business turnarounds.
CASH FLOW STATEMENT
- Provides the best measure of liquidity; that is, your ability to generate sufficient cash to meet financial obligations as they become due without disrupting the continuing operation of the business.
- Can serve as a financial control tool by allowing you to monitor actual performance vs. budget projections.
- When used as a projected statement (budget), it formalizes the overall planning process and requires you to document your expectations.
“The safest way to double your money is to fold it over and put it in your pocket.” – Kin Hubbard
If you need some help, there are expert consultants at FamilyFarms Group. Our goal is not to take over any of these areas, but to help you get a better handle on how to implement managing practices.
Contact us to learn about other ways to improve your operation.
REQUEST A FREE NEEDS ASSESSMENT from Gary Huggins, Team Accounting Specialist