Mind Your Farm Business — Ep. 69: BMPs for keeping up-to-date financial records
Year-end financial statements aren’t just for year-end reviews — especially if they happen months after the year-end.
Realistically, if you’re not reviewing the books until months later, the decisions being made in the present aren’t fully informed by the reality of the business situation, says Lisa Miller, partner with MNP Agriculture, based at Edmonton, Alta.
There are several financial reports to generate throughout the year, not just at the end of a production cycle or year end. An income statement and balance sheet tell you different things about the farm, including profitability, if the business is over- or under-leveraged, how well you can cover debt, and more.
Miller adds that reviewing these reports with a trusted and knowledgable advisor is key to identifying red flags, such as servicing long-term assets with short-term debt or being over-capitalized on equipment.
“We’re not expecting you to (update the books) every day, but at least quarterly is a good practice, (and) monthly would be great as well,” she says.
With up-to-date books, the management team and advisory professionals you employ can dig into relevant financial rations, such as the current ratio and debt servicing ration. What’s “good” for a ratio is somewhat sector dependent; however, the ratio is only as useful as the information used to calculate it.
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