Share Farm Financials with your Ag Team

Today I want to talk about farm financial statements. They can serve as a tremendous communication tool. I'm a firm believer that financial statements can be a great communication tool not only with your lender but also for family members, advisor groups, etc.

For example, let's start out with a cash flow statement. If you develop a projected monthly or quarterly cash flow statement, you can use this as a communication tool; particularly when you put the actual results against the projected results. Next, you can tweak the game plan with both your management team and employees as you go throughout the year.

The income statement and enterprise analysis is an extremely critical communication tool. In other words, you've got to identify what's making money and what's losing money so that you can orient your resources, land, labor, capital and information to achieve optimal results.

Another great communication tool is the balance sheet, because you can use trend analysis, and compare one year to the next. Examine the differences to see if you have positive earned net worth or negative. In this type of economic environment, trend analysis is critical to understand the direction of trends.

If you have these statements, you can develop a few key ratios. One thing I'm finding many top producers doing, is they're developing a dashboard of key ratio that they can monitor from year to year. Again, put these financial statements together, and then utilize them as a communication tool with your lenders, employees and management team. They serve as a very powerful tool to set you ahead in this type of economic environment.