Financial Management

Monetary considerations for building a successful farm business

Most farm business owners would agree that financial management is an important part of managing a business. Many would also agree that the process of recording, gathering, and analyzing their financial information is a tedious job they sometimes neglect. Financial decisions however, are much easier to make when you have information about the performance of your business. So even though it can seem to be an unproductive task when compared to a host of other pressing issues that require your attention, financial management is a critical component of your business.

If financial management is not your passion, you should consider working with a financial advisor who is able to gather and organize your business information for you.

Financial Planning

Critical components of stable financial management:

• Regular recording and monitoring of financial transactions
• Analysis of past and current performance
• Forecasting future performance, including cash flow and debt service
• Setting and monitoring financial goals
• Planning for the unexpected

Financial Seeds of Success

Financial management is important to other aspects of your farm business as well. It allows you to establish a cost of production, which in turn helps you determine your marketing strategies. Financial management also allows you to monitor debt service and to decide if a succession plan that includes working with additional family members is financially prudent.

Financial Considerations

Financial management is the backbone of any successful business. It starts with the development of a suitable financial information system. This will allow you to analyze the information and establish financial goals, which are required to set future performance benchmarks.

Here are a number of finance areas business owners must focus on:

• Evaluate current record keeping system.
• Determine what information you need.
• Determine requirements of lending institutions.
• Assess your skill level for analysis and if needed, get training or help from a trusted advisor.
• Monitor financial progress on a regular basis to determine if you are meeting your financial goals.
• Establish a personal benchmark for the different enterprises within your farm operation and review year-to-year performance.

Financial Terms and Definitions

Capital investment

Money used by a business to purchase fixed assets, such as land, machinery, or buildings or money invested in a business with the understanding that the money will be used to purchase fixed assets, rather than used to cover the business' day-to-day operating expenses.

Financial Records definition

Formal records of a business representing the transactions of a business, organization or entity and they include statement of retained earnings and cash flow, income statements and the company's balance sheet and tax returns

Improving cash flow

the ability to pay your bills and living expenses.

Increasing profitability

the ability of the business to generate a return after expenses.

Records

without good records, analysis and financial goal setting is impossible.

Resources and skills

Resources are human, financial, physical, and knowledge factors that provide a firm the means to perform its business processes and Skills are a range of qualifications across all levels that are considered to be essential to success in education, employment and life in general.

Risk management

Risk management is the art and science of making decisions about the use of available resources and acting on those decisions in an uncertain world so that the short- and long-term goals are as fully satisfied as possible

Taxation

A means by which governments finance their expenditure by imposing charges on citizens and corporate entities.