Prep for your year-end farm financial check-up (Credit Corner)
(Editor’s note: Paige Hargett is a loan officer with MidAtlantic Farm Credit.)
Before we can start planning for another year of growing, we must first evaluate our business and production performance for the past 12 months.
Completing a year-end financial check-up will help you analyze your successes and failures, in addition to revealing your opportunities for growth into the next season.
There are five key steps to implementing a year-end financial check for your farm business:
Update Your Balance Sheet and Profit & Loss Statement
A balance sheet is a financial snapshot of your business at a specific point in time.
Preparing an end of year balance sheet provides you and your lender with a baseline, and allows for the preparation of accrual adjustments.
Accrual financial statements deliver a more accurate picture of your operation’s actual income and expenses, and gives you the ability to recognize relevant expense or income trends.
They also allow for the calculation of accurate cost of production, the ability to measure competitiveness, and can help improve planning.
Schedule a Year-end Tax Planning Appointment with Your Accountant
Working together with an experienced agricultural accountant can help you identify proper year-end planning to help positon your farm business, prior to filing your taxes.
Are you ready to upgrade equipment? Should you prepay next year’s operating costs? Are you planning to purchase a new farm entity or transitioning part of the farm business to the next generation?
It is never too early to begin gathering your financials to prepare for filing your farm business taxes or to set-up a meeting with your accountant to review your financial progress.
Review Your Annual Budget & Examine Your Cash Reserves
Once you have completed your year-end financial projections, it is important to compare those figures to your annual budget.
Did this year progress the way you anticipated? Did you find yourself with higher input costs or lower projected income than expected?
Being financially aware of your budget will help you to make better business decisions, help you to prepare for the coming year, and allow to you to review your cash reserves on hand.
It is always a good management decision to set aside three to six months’ worth of living expenses for an emergency fund.
Reach Out to Your Farm Advisor Team
Every farm has a unique resource team supporting their farm operation.
Your team may include a financial advisor, farm insurance agent, crop insurance representative, and/or an attorney. Remember to check-in with them as needed — you do not want to overlook an opportunity!
Consulting with reliable advisors and completing the current year-end updates will certainly help to support your future success.
Schedule a Check-in with Your Lender
The fourth quarter of the year is a great time to check-in with your lender to discuss your successes and any challenges you faced during the year.
We look forward to discussing your future plans or any changes you may have made to your business plan or marketing plan.
During your check-in with your lender, think about two specific areas of conversation: evaluating the best use of debt dollars and reviewing your revolving line of credit.
Detailed record keeping is imperative for your lender to understand how the year went, even the bad is welcomed as we want to better position your operation for the upcoming year.
Our main goal is for you and your operation to be successful.
We hope this list gives you an idea of what you should be thinking about during your year-end farm financial check-up.
If you are ready to schedule your check-in or want to discuss future growth opportunities, visit mafc.com or call 888-339-3334.