Lack of financial management is a primary cause of failure for value-added businesses.
Financial management starts with keeping records. There is an old saying that “you can’t manage what you can’t measure.” Records provide you the data needed to measure the activities of your business. In other words, records are the foundation for the financial management of your business.
After you have created a good set of records, you can begin constructing financial statements. These statements focus on the three main aspects of financial management: profitability (are you making money), liquidity (do you have enough cash) and solvency (how close are you to going broke). Financial statements tell you your business’s current financial status along with its past financial status. Historic statements can identify financial trends that will help you project the future financial status of your business.
A good set of records can also help you budget future potential profitability of various changes in your business. These budgets help you make meaningful decisions about the future course of your business.
If your business is experiencing financial stress, financial analysis and management can help you identify and analyze alternative scenarios for relieving financial stress.
For more information on this topic, see the links listed below of articles posted on related Web sites. Also see the worksheets and calculators available on the Business Workbench.
- An Integrated Financial Management Package – Kansas State University Extension.
- Financial Management; The Key to Farm-Firm Business Management – Texas A & M University Extension -- Farmers must adopt some of the basic planning and management tools used in business.
- Introducing Farm Business Analysis -- University of Florida Extension -- There is great emphasis today on record keeping on the farm. This emphasis is correct. Many farmers presently in financial difficulties could have avoided some of these difficulties if they had had records to consult.
- Is Your Company Nudging the Numbers? – HBS Working Knowledge -- Pressure to meet the numbers is greater than ever. But don't let your company issue a misleading earnings report.
- Analyzing Your Current Financial Position – The U.S. Chamber of Commerce -- Delves into some of the more sophisticated ways of examining your financial statements and other aspects of your business, to identify trends, spot problems before they become too large and compare your business to others in the same industry.
- Preparing Financial Projections – PlanWare -- Financial modeling with a computer, how models work, planning to plan, and tips and traps.
- Important Farm Business Terms Defined – Finance -- Kansas State University Extension -- Provides definitions of important farm business terms.
- Financial Economic Terms – Texas A & M University Extension.
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