Dollars and Sense: Organizing and planning for the upcoming year
12/21/2021
Cindy Birchmeier, GreenStone FCS Senior VP of Credit for Regional Sales
GreenStone December Dollars and Sense

 

With harvest done and the weather turning, it’s time to move to the next order of business — analyzing the past year and preparing for the next season! The end of the year is the perfect time to go through the piles of paper, making sure your records are up to date, and compiling data that will help you make your best credit and business management decisions.

 

With accurate year-end financial reports, everyone benefits from being able to make year-to-year comparisons. You can assess how the business is doing financially, plus plan for improvements and changes. Year-end reports also save time in the coming year if you’re looking for new financing or opportunities.

 

Here are the three reports that will best allow your financial partner, like GreenStone, to help you prepare for a fresh and exciting 2022.

 

 

Year-end financial statement

Your balance sheet shows what you own and what you owe, such as land, buildings, equipment, livestock and crops - whether it’s feed, harvested, or growing. It also lists pre-paid assets and accounts receivables. If you own rental houses, other bank accounts like a retirement or investment, or other properties, these all need to be included as well.

 

For the liabilities, consider how much money you’ve borrowed, credit card debt, traditional financing, what you owe to suppliers of products and services, and any deferred payments.

If it seems overwhelming — it’s okay! You can start with the basics and not include the asset values. They change frequently, so your financial team can help you fill in the blanks.

 

Your job is making certain it’s a comprehensive list from the beginning. Start as early as you can, so as more ideas come to you, you can add them.

 

 

Profit and loss

Your year-end tax return gives a lot of information, but since it’s usually not available from your accountant until the spring, that’s why we suggest keeping your own detailed profit and loss statement as a better guide.

 

When you’re tracking your records in accounting software, this is the time to clean up the details and go over any potential errors. When it’s up to date, a profit and loss statement is valuable, since it’s available earlier than a final tax return and contains more detail.

 

Your lender will be happy to guide you in making certain it is accurate.

 

 

Cash flow projection

Now, armed with all that past information, the next answer you need is where you’re headed in 2022.

 

Your projection should include crops you plan to grow, the number of acres you plan to plant, projected yields and units of production such as cwt of milk, number animals sold, price and unit sizes.

 

While inputs and outputs will vary, you can use market values to help establish a budget for the coming year.

 

With everything you have to do in your business, sometimes it seems difficult to take the time to find and record these details. In addition, it might not be encouraging to see what low profits are projected.

 

However, this is a great management tool for every business. If there is a way to increase profit margins, like changing suppliers, inputs, rental agreements, or strategy, now is the time to make it happen, and having this information available will help you know what the right decision is for you and your farm.

 

 

Here’s to a new year

Typical year-end planning also takes into consideration account tax mitigation such as pre-paid expenses and capital purchases. Capital purchases should be based on needs, not wants.

 

Long-term investment decisions need to balance an opportunity to improve profitability with the short-term benefits of minimizing your income taxes at all costs for the current year.

 

Producers are consumed with their day-to-day business details, and there’s no one who has a better understanding than you. Though it may seem challenging to initially compile and keep these three documents updated at least annually, it will ultimately benefit you and your business.

 

From a credit perspective, the more your lender knows, the easier it is to make informed decisions.

 

Here’s to a successful year-end and 2022!

 

 

*Written for the Michigan Farm News Dollars and Sense Column

 

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