How to Read a Balance Sheet for a Poultry Farm

First Financial Bank
Looking to purchase a commercial poultry farm? One of the financial documents that can help you assess the business’ viability is a balance sheet.

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.

What is a Balance Sheet?

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:

  • The balance sheet gives information on assets, equity, and liabilities. The basic formula is Assets=Liabilities + Owner’s Equity. A balance sheet is also known as “net worth” statement (If you subtract liabilities from assets, you find the equity value for the owner.)
  • Critical information in any balance sheet is the information on cash, accounts receivable, short-term investments, land, grain, feed, flocks, inventory, equipment, and other significant liabilities.
  • A balance sheet should always balance, meaning that assets should equal liabilities plus owners’ equity.

How to Read a Balance Sheet

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:

1. Assets

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.

  • Current assets can be converted into cash within a year, such as cash, marketable securities, inventory (crops, hay, young livestock to be sold within one year, etc .) and accounts receivables.
  • Noncurrent assets, such as land or other real estate, breeding stock, equipment, and , other assets that are not expected to be converted within the year.

2. Liabilities

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

Current liabilities include wages payable, debt financing, rents payable , utilities payable, accounts payable, and other costs.

  • Noncurrent Liabilities

Examples of noncurrent liabilities which are not due within a year could be obligations for future goods or services, leases, or loans.

3. Owner’s Equity

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.

Other Financial Documents to Consider

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:

  • Profit/Loss Statement

This is also known as the Income Statement provides insight into how profitable the farm is over a period of time.

  • Cash Flow Statement

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.

Assessing a Poultry Farm Using the Balance Sheet

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.

Want to talk about your business plans? Let’s chat!

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