Well Prepared Financials Reflect Good Management Skills

Kathy A. Daily

Good production numbers are great, but management skills are a must in today’s environment of tight margins and the endless pressures from third parties.

Every opportunity you get to show your landlord, banker, integrator, employees, and others that you are a good manager will pay off down the road.

Management skills can be shown in many ways, but I will focus on just one today. The quality of an operation’s financial statement is a big indicator of the management ability of the producer. The financial statement is usually pushed to the side and not even thought about until the banker asks for it, and then it’s often put together at the last minute. We see all types of financial statements. We have received numbers written on a piece of paper that we could barely make out detailed financial statements.

Good quality financial statements include the supporting of almost every number you have on the statements.

Examples:

Crops on hand should list commodity, bushels, and price per bushel.
Investment in growing crops should include commodity, acres, and price per acre invested.
Loans should include lender, collateral, payment, rate and principal balance.
List equipment lease payments on a separate page and don’t include the value of the leased equipment on your equipment list.

Some producers can prepare their own financial statements and provide good quality detailed financial statements, but others don’t have the time or ability to prepare them. Being a good manager doesn’t mean that you have to do it yourself; being a good manager means recognizing that you can’t do it and hiring someone to do it for you.

The larger your operation is, the greater the need to have a bookkeeper or accountant prepare your financials.

This is also true with operations that have multiple employees, or operations that are diversified. If you have multiple crops and/or livestock, you need to be able to see which of those commodities/enterprises are profitable and which aren’t. I’ve seen producers amazed at where their income is actually coming from once they start putting expenses in the right buckets. For example, trucking and insurance may be getting dumped in one enterprise when it should be split between several.

By utilizing the services of a bookkeeper/accountant, you can make adjustments to your operation quicker and not at the end of the year when you are forced to prepare a financial statement for your banker. Your farm operation is a business just like any other business, and you should be managing your farm financial statement regularly.

Having quick access to detailed and accurate financial information will set your operation apart from others in your area and just might make the difference in whether you get the chance to seize an opportunity when it comes your way.

Kathy Daily is the Managing Director of First Financial Bank’s Farm and Ranch Division. Mrs. Daily has been an agricultural lender for over 25 years.

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