Winter 2023 - Profitability & Economics F - Flipbook - Page 17
Business
STEP 2: Reading the Financial Reports
Once you have the financial reports, the next step is learning how to read them. Whether you are producing
the reports, or you have hired a third party to produce the reports, you still need to know and understand
how to read them so that understand how your decisions will affect them. Four of the main reports you will
want to understand are the Balance Sheet, Income Statement, Cash Flow, and CBBE.
Balance Sheet
Provides an overview of your company’s assets, liabilities, and equity as of a certain date.
Income Statement
Provides the revenue, expenses, and net income for the current month as well as for
year-to-date. This can be broken into separate divisions (livestock, crops, etc.) to help you
evaluate how much each division is contributing, if at all, to the net income.
Cash Flow
Provides a summary of where the cash came from and where it went. The report looks
closely at the operations, debt obligations, and funding to and from investments.
CBBE
Cash Based Break Even is a report that looks at your cash outflows to measure your cash
breakeven price. You start with your net income and back out any non-cash line items like
depreciation and add back any cash outflow items that would not be included in the net
income like principal payments on long-term debt.
STEP 3: Using the Financial Reports
There are a lot of moving parts when it comes to operating any business and a farm is no exception to that.
Key business decisions can be stressful and are being made, sometimes daily, on the farm and the financial
reports should help by giving you support for those decisions. Below are just a few decisions of many that
should be made by using financials.
Succession Planning
What value am I passing on or selling to the next owner and how does it affect those involved
financially?
Expansion and Growth
How much to expand and in what division of the business?
Risk Management
What is my breakeven and how much profit am I locking in for next year?
Financing
How can I get better financing?
Benchmarking
How do my costs and revenue compare to my competitors?
In conclusion, the financials of your business can and should largely influence the decisions that are being
made daily. Help reduce the stress and headaches of those decisions by having “the numbers” at your
fingertips. Get the financial reports, learn how to read the reports, and then use the reports to manage your
business and profitability.
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