Start up farms need a strong financial presentation on paper just like mature businesses – here’s why & how…
Management accountants specialise in making professional financial masterpieces of your raw accounting data.
Their reports and statements make intelligible detail of the morass of our daily minutiae.
Conveying the the right financial messages to a multidisciplinary business team can prepare your farm business for expansion and therefore success, organic or otherwise.
But how about a start up farm?
Aptly, the phrase “…start as you mean to go on” on belongs here.
Having a firm foundation of theoretical financial discipline underpinning your farm business, keeps expectation watertight.
However, we know there are no guarantees in business.
But to demonstrate sound adherence to financial planning norms and protocols gives credence to what’s on paper.
Advantage of a firm small farm business plan
If your agricultural business plan is credible, it’s likely you will find more willing counterparts for investment.
This could come in handy before or after buying a smallholding property.
You’d be surprised how much of a difference having trustworthy figures can make to the furtherance of your small farm business:
- attaining favourable supplier terms,
- attracting investors or;
- experienced management staff or partners,
…is all heavily influenced by sound financial paperwork.
We outline below the fundamentals of just what an accountant might do to best prepare your small farm accounts for successful start up.
Meticulous records and systems
You just can’t number crunch unless you gain access to ready and reliable raw data.
Data entry is worth investing in properly at the start, in order to get things done right from source.
Data integrity is a critical factor to deriving numbers you can trust.
Methods and means of inputting data need to be accurate.
Risk of duplication and entry error will only corrupt the data further on down stream.
Investing in an entry system which has built-in data validation could save a lot of time and hassle further on.
As few people as possible inputting data will also restrict variability and scope for system user error.
Those who do use the system will require professional training and if feasible, qualification.
Data acquisition from source documents, like sales orders or purchase orders, ought be routinised and auditable.
Being able to backtrack through steps taken at a later stages gives peace of mind concerning investigative outcomes.
Data formatting is equally as important.
You should use widely accepted professional bookkeeping templates and methodology.
This keeps your financial figures up to industry standard, which will be worth much, especially in the way of tax declaration.
Resources:
- A day in the life of a farm bookkeeper – AAT
- Why data integrity is crucial for your business – Business.com
- Accounting software and agricultural matters – The Farming Forum
- Farm record keeping – The Forestry and Agrifoods Agency Canada
Cost control
Have a granular approach to cost identification and management.
Anecdotal estimations mentally stored are not enough.
You should be honest, open and transparent with your numbers.
Many small business owners dare not commit a comprehensive roundup of cost to paper for fear of true admission.
Do not allow your ideal perspective to deceive you of the reality.
Cost control involves investigating at the finest level of detail concerning drivers for cost and how they behave.
Itemising your costs and applying an accurate method of allocation is directly correlated to achieving worthy projections on future performance.
Also, your current real profit position and cash flow figures are directly comprising of income vs. cost.
Get cost wrong and your higher level reports will lead you astray.
Misleading profit reports and cash flow forecasting places farm businesses in a position of falsehood.
False profit = false take home earnings.
The day that image falls and is found wanting, everything taking refuge beneath it also faces damage.
So, get real with cost.
Resources:
Cost Management Overview – Grey Campus
Profit Loss
A profit loss (otherwise known as an farm income statement) is one of 3 most prominent financial reporting instruments handled by a management accountant when assessing a farm’s financial performance.
The other two instruments being: cash flow statement & balance sheet.
A profit loss as indicated by it’s title in simplicity is an overview or summary of what is left over (if anything) after you’ve deducted outgoings from your farm income.
Whilst this is a over-simplified definition (…and dangerously so) we would highly recommend reading the following Farm Income Statement Guide.
The importance of this statement lies in it’s indication of sustainability.
It answers the question of …
“how able is your farm in paying off it’s operational obligations, plus recompense you and investors?“
This is a very important question to have answered.
At the point of startup, your figures will not be actual.
But what you will want to have is an accurate estimation of how sustainable your farm business should be in theory.
This gauge, if used responsibly will go a long way to steering your eventual efforts on the road to success.
Resources:
Basic accounting: guidance for beginning farmers – Alaska Farmland Trust
Cash flow
Cash availability is the leading edge to a viable small farm business.
Timing, volume & processing of cash all play their part, but…
…at the critical times, if a business does not have enough available cash within, then it can quickly become undone.
Many farm business are currently facing the fiscal frost of cash flow crisis.
Getting sight of the matter accurately on paper and not overlooking the practical priority of cash is an important step.
Whilst getting a solid oversight of your cash flow is one thing, what about devising way to increase cash availability?
Try out this guide on “…transforming farm gate sales with collaborative direct farm marketing.”
However, 1st things 1st…
…half the battle won against the risk of inadequate cash flow in your farm business is getting your paperwork in order.
Resources:
3 steps to actively manage cash flow on your farm – Agriland.ie
Reporting and projection
Pooling your financial facts and figures together and presenting summaries of your findings is a key skill to starting up a successful farm.
Executive snapshots allow for intimate understanding of the outcome of business operations, at a quick glance.
Being able to convey succinctly the financial condition of your business helps to disseminate insight among stakeholders.
Projecting future performance against current knowledge is a key tool in decision making.
This practice enables you to take a view on what you think might be.
The benefit here is preparation.
Knowing generally what is reasonable to expect…
…means you are able to assemble your resources in order to best effect your plan.
Resources:
Establishing and Using a Farm Financial Record-Keeping System – Extension.org
Balance sheet
Assets and liabilities i.e. revenue generating (e.g. cash savings) and revenue consuming possessions (e.g. contracted debt repayments) of your small farm business are detailed within the balance sheet.
Keeping a close eye on what value, or otherwise, underpins your farm business requires a balance sheet.
This single tabulated document identifies the fundamental financial health of what props up your business worth.
It is an objective assessment of the long term viability of your enterprise, outside of direct operational fruitfulness.
A balance sheet is not inclusive of sales revenue or cost, but rather how your cash will be affected by what belongs unto your business.
Even should operational trade figures flatter, the net worthiness of a small farm business is heavily impacted by it’s balance of unrealised revenue generating ‘assets’ vs. revenue consuming ‘liabilities’.
Resources:
The basics of a farm balance sheet – Ohioline.osu.edu
The round up…
When planning to start a small farm business for profit, it is prudent to bring together an accurate financial plan.
Professional management accountants typically prepare such documentation, but the points above enable you to see things as they see them – without the cost of hire.
We would hope this might encourage you to take the plunge and build a plan yourself.
It is relatively straight forward to achieve a professionally sound financial assessment for start-up, with the right guidance.
The chapters of this article above touch upon the main points of such a plan.
Take a look at some of the resources quoted for further reading and online tools to help you get sorted.
Are you in need of some early 1-to-1 professional guidance in planning your farm start-up?
Join the conversation below.