Your passion, skills, and expertise are important to your success as a business owner. Still, you must do your due diligence to determine if the poultry farm you are considering purchasing is worth your investment. There are several financial reports to review, including the balance sheet. Let’s look at how it helps to illustrate the financial health of a business.
The poultry farm’s balance sheet is a snapshot of assets and liabilities at a single point in time. It provides information on what resources are available to the business and how those resources are financed. The bottom line is that the balance sheet can be a key element in helping you determine whether the poultry farm is a wise investment for you – or not:
It is time to break down what is included in a balance sheet and what each section means. The balance sheet provides significant insight into a farm’s fiscal health. A balance sheet has three sections: assets, liabilities, and equity:
Assets are anything owned by the company that could be converted into cash, called liquidation. Assets are usually positives on the balance sheet and are divided into current and noncurrent assets.
Liabilities are what a company owes, are obligated to pay, and are an inverse of the assets These are tallied against the balance sheet. Liabilities are also current or noncurrent.
Current liabilities include wages payable, debt financing, rents payable , utilities payable, accounts payable, and other costs.
Examples of noncurrent liabilities which are not due within a year could be obligations for future goods or services, leases, or loans.
The owner’s equity is what remains when you subtract liabilities from assets. In summary, owner’s equity is anything belonging to the poultry farm’s owner(s) after any liabilities are accounted for.
As important as the balance sheet is in evaluating a poultry farm, you’ll also want to review other financial documents/reports, such as the:
This is also known as the Income Statement provides insight into how profitable the farm is over a period of time.
This financial report looks at the money going in and out of the farm and can help answer the question, “Is the farm generating enough cash to pay expenses?”. Elements included are short- or long-term investments, loans/financing, and operating costs.
Now you can see how vital the balance sheet is when considering the purchase of a commercial poultry farm. But don’t forget other factors as you assess the farm’s viability.
Consider the history of the business, including longevity, location, age of infrastructure (such as chicken houses and supporting feeding/watering technology), and employees who may be staying (or not). Who is the integrator and what will their terms and conditions mean for you as the owner?
Use all the resources at hand, including the balance sheet, to make an informed and practical decision you can be confident in.