With the fourth quarter of 2021 already in progress and harvest season behind us, now is a great time to perform an overall financial check-up for your business.
“We recommend that farm operations do this annually,” says principal Brad Palen of KCoe Isom. “Not only does it provide you with a clearer picture of your business’ progress for the year, but it can also potentially find some late-season opportunities to save or make money. You might even spot ways to minimize your tax obligations.”
Here’s a checklist to track the progress of your business as 2021 winds down.
“As a CPA, I hope you address every one of them. But even completing only one or two will provide a clearer picture for the year ahead. More importantly, you might detect issues that can prevent small problems from escalating into big ones,” Palen adds.
- Know your numbers. Make sure your accounting records are in line. Confirm that your loans agree with your bank balances. Do your year-to-date revenues and expenses line up with your budget? What changed and why?
- Gather all documents for the fixed-asset purchases you’ve made this year. Send them to your accountant to update your depreciation schedule.
- Reconcile all your bank accounts. Know what your balances are on operating or vendor loans. Is there enough to pay expenses for the rest of the year?
- Review any grain-sales contracts. See if you can defer any payments to next year.
- Identify what kind of crop insurance you have. Check whether there’s opportunity to defer any proceeds.
- Assess your inventory and review all costs associated with it. Be aware that feed costs are tax-deductible.
- Examine your crop results. Did yields meet your expectations? It’s a good time to communicate with your agronomist about what worked and what didn’t.
- Plan out machinery and equipment repairs so they’re completed before planting rolls around next spring.
- Review any rental or lease agreements. There may be opportunity for positive gains. If you have a landlord or crop-share arrangement, make sure you have the information you need to split expenses or to pay your share of revenues.
- Speak with your accountant about any opportunities to better align existing debt structure and enhance working capital.
- Go over your employee benefits package, including any potential bonuses and 401(k) contributions. This will be especially helpful in preparing you for employee performance reviews.
- Set up a 2022 strategic planning meeting with your board of directors and trusted advisors. Once you’ve developed a plan, relay it to your key managers to help you execute it.
- Re-evaluate your risk management plan for 2021. Will it stay the same or change for the coming year?
- Begin developing a full farm budget for 2022. Provide details for each crop. Include all expenses. Don’t leave out an expense just because you think it’s a personal item. Including those costs will ensure a way can be found to pay for them.
- Communicate your plans and budgets to your tax advisor. The more he or she knows, the better they can help you with tax-planning advice.
These financial checks can help you decide how to proceed and succeed in 2022. If you need help with financial management, tax and accounting, or risk management decisions, contact a KCoe food and ag specialist with questions or to request planning services.