Andrea D. Foore | Posted on Nov 28, 2022
With harvest season ending and the New Year quickly approaching, it’s time for farmers and agribusinesses to start preparing for their annual financial review. This process makes the transition into a new year easier with a current assessment of fiscal strengths, weaknesses, and new opportunities.
An ideal first step is to prepare your financial documents, which includes a balance sheet and profit and loss statement. The balance sheet should encompass all assets and debts such as all equipment, livestock, crops in storage, loans, and credit card balances. The profit and loss statement should itemize the farm’s income and expenses. This statement provides helpful insight into any trends on both the income and expense side. Software programs such as QuickBooks® can generate both statements; but, if you don’t utilize a software program, you can request a form fillable balance sheet and profit and loss statement from your local lender.
Once these documents are completed, it’s time to tackle the second step by scheduling your annual meetings with your professional advisory team. This team should include key financial business partners such as your lender, accountant, and insurance agent. Discussions with your team should include your present situation and your goals for the future. For example, it’s important to discuss debt management, review your line of credit, and consider any expansion or succession planning with your lender. Ask your accountant for guidance on major decisions related to purchasing new equipment, pre-paying next year’s seed or fertilizer, and new opportunities for growth. Review your insurance policies with your agent to ensure you have the optimal coverage for your family and farm operation. The appropriate policies vary for every farmer, but it is essential to have adequate coverage to help reduce risk and liability.
Additional year-end business activities and the logical next step should include such items as completing a thorough review of your lease agreements, verifying employee information, and securing and backing up your financial information. Similar to meeting with your advisory team, farmers should meet with any landlords or tenants to discuss any possible rent adjustments. When verifying employee information, confirm their name, address, and social security number for their Form W-2. Finally, make sure your business information is backed up and secure. An external hard drive will safely store a copy of your information in the event your computer crashes. If you are interested in additional protection for your bank deposit accounts, talk to your lender about a referral to a treasury management officer for recommended services to protect you from check and electronic transaction fraud.
Although the annual financial review can feel like a daunting process, maintaining excellent records throughout the year, partnering with your professional advisory team – lender, accountant and insurance agent – and tackling the year-end business activities will set you up for continued success in the New Year and for many years to come.
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