Most farm business owners would agree that financial management is an important part of managing a business. Many would also agree that the process of recording, gathering, and analysing their financial information is sometimes a tedious job that they might neglect from time to time. Financial decisions however, are much easier to make when you have information about the performance of your business. So even though it can seem to be an unproductive task when compared to a host of other pressing and urgent issues that require your attention, financial management is a critical component of your business. If financial management is not your passion, you might consider working with a financial advisor who is able to gather and organize your business information for you.
The financial management of your farm business has several components including:
• Regular recording and monitoring of financial transactions;
• Analysis of past and current performance;
• Forecasting future performance; including cash flow and debt service; and
• Setting and monitoring financial goals.
Financial management is important to other aspects of the business as well. It allows you to establish a cost of production, which in turn helps you determine your marketing strategies. Financial management allows you to monitor debt service and to decide if a succession plan that includes working with additional family members is possible.
Financial management starts with the development of a suitable system to manage your financial information. This will allow you to analyse the information and establish financial goals, which are required to set future performance benchmarks.
Financial management is the backbone of any successful business. The key areas that farm business managers focus on include:
• Improving cash flow – the ability to pay your bills and living expenses.
• Increasing profitability – the ability of the business to generate a return after expenses.
• Taxation – businesses should strive to pay the optimum level of tax.
• Capital investment – businesses strive to allocate available capital to the best use.
• Records – without good records, analysis and financial goal setting is impossible.
• Risk management – identifying financial risks is the first step in managing them.
• Resources and skills – understanding your weaknesses allows you to find alternatives.
You will make better decisions on your farm if you evaluate your current record keeping system, determine what information you need, assess your skill level for analysis and if needed, get training or help from a trusted advisor, and monitor your financial progress on a regular basis to determine if you are meeting your financial goals.
Financial assistance may be available through the Farm Business Development Initiative to help you cover the costs of training in financial management or working with a consultant to develop a financial management plan. For more information contact the Regional Farm Business Management Specialist or the Agriculture Knowledge Centre at 1-866-457-2377.