Make the most of your accountant
Dependable accountants are key to planning success.
A do-it-yourself mentality can be good for a lot of things. When it comes to financial planning, though, it’s likely not the best approach.
Dependable accountants are the key to planning success, according to Dick Wittman, a farmer and veteran farm finance expert based in the United States. A good advisor can help business owners prepare for challenges and opportunities through an analytical approach to farm finances.
Choose the right advisor
The first step is finding the right advisor. Some accountants, Wittman says, prefer tax planning while others specialize in more general business financial analysis. Such individuals can help assess a wide variety of characteristics – deferred tax expenses, costs compared to market value of assets, cash and accrual-based profitability, and other foundational assessments – through financial statements.
The more thorough your statement, the more well-informed you’ll be as a business owner. Rather than basing a capital asset decision on affordability alone (whether to buy or lease a piece of equipment, for example), advisors can highlight which option makes the most sense for your wider business.
“There’s a tendency to do a knee-jerk reaction and not to be analytical,” Wittman says. “Sometimes farmers are not asking about alternatives because they don’t know what questions to ask.”
Choose a statement framework
Currently there is no standard Canadian financial statement format. Instead, Wittman says, lenders and financial management companies take their own approach, though metrics such as working capital, liquidity ratio, debt-to-net worth ratio, and profitability are common to all good statement formats. The methodologies used to make calculations, however, vary by company and organization.
The solution is to use financial worksheets consistently. In practice, that means compiling similar information over time, and comparing that information to generate an accurate financial picture. A trusted accountant can help review worksheet data to ensure the information is sound.
Turn data into decisions
“The challenge is the interpretation of the data. It’s really valuable to have a good analyst . . . most farms don’t rely on accountants to provide meaningful financial reports.”
Whatever the form, Wittman reiterates financial statements are not just tools for acquiring loans. Financial information has multiple uses – including identifying if a farm is profitable, or how succession planning could proceed – and is primarily valuable for the business operator. Investments in good advisors are critical to realizing that value.
“It does work. It’s doable. It requires an educational foundation and a good support team.”
From an AgriSuccess article by Matt McIntosh.