As we've recently ticked over into the new financial year, now is the time to look at what financially needs doing to set your business up for any opportunities that may come along.
Last week, I had a client send through draft financial statements for the 2021 financial year. I would think the minority of farming businesses would be this quick off the mark. There is, of course, a difference between getting financials prepared and lodging income tax returns; the dates generally vary a lot between these two activities.
Most accounting programs are cloud-based these days, and bank feeds are a regular feature. This means if a business keeps up with reconciling bank statements, the work required to prepare financials is largely completed. Of course, there is other information to gather, but in essence the grunt work is done.
If you get your information to your accountant before the surge towards the end of the calendar year, it's more likely the turnaround time will be shorter. This naturally takes a bit of planning. But, quite often accountants are accommodating of this request.
Good record keeping is a must for any business, including agribusinesses. In the case of farming it's not just financial records, but production records. Both are as important as each other.
Your accountant will require your production numbers, particularly if you run livestock. The more up-to-date information you have at your fingertips, the better.
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A common example where the most recent financial information is crucial is in loan applications. The lead time for all banks to approve loans has blown out in the past year or so. From my understanding, this is mainly driven by the extra regulatory burden that has been put on banks, both internally, and by various government agencies.
The more information provided upfront, the more quickly a deal will pass through the system. There are many hands that touch an application on its journey to approval.
The other benefit of having current financial data is that it demonstrates professionalism, another metric banks use to assess deals.
Any business that is on top of its numbers, can produce them in a timely manner, and explain variances, is looked upon very favourably compared with those that can't.
An agribusiness that is organised in relation to financial and production information is more likely to be able to run "what if" scenarios easily. Doing this and demonstrating in a summary format to a bank the difference these scenarios make to various financial ratios is very useful.
In my view, there are many flow-on effects from getting your financials done early each year. There is peace of mind from having a major task complete and, just as importantly, the farming business can jump at investment opportunities more quickly than others. The early bird gets the worm.
- Details: bagshawagriconsulting.com.au
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