Keep in mind that this calculation really only takes
into account your investment in terms of dollars.
It doesn t take into account the amount of time
you ve invested in your farm.
Profitability is most likely an element you ve
given great consideration. How much are you making
after everything s paid and settled?
Profitability measures the overall financial
health of your business by weighing
your ability to generate earnings against
expenses and other costs of doing business.
It can also help to determine
whether your fixed costs are too high to
sustain your business. Identify your net
operating profit margin and divide by
gross revenue. The higher the resulting
percentage, the better, but a good rule
of thumb is 20 per cent.
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Few (if any) farmers
enjoy working on
financial ratios, but
all like the payback
When approaching the subject of
your farm s performance with your
accountant or banker, it pays to do
some research. Your financial statements
are great at telling you how your
farm performed last year but not nearly
as effective at telling you how much
your farm is worth.
Know the market value of your assets,
as this information is not necessarily
included on your balance sheet. Have
a good idea of what your revenues and
expenses are going to be next year. Be
prepared to talk to your banker with a
full understanding of what happened last
year and, even better, your prediction of
where you ll be next year.
Getting a handle on the finances of
your farm will put you in a better position
to work with your accountant and
ensure the long-term sustainability of
your operation. Your accountant often
uses set fields to determine certain elements
of the financial benchmarks of
your business, so do your homework
and be prepared to have holes poked in
your ideas. With a little preparation and the right
knowledge you can better communicate and take
control of your farm s finances. CG
Mary Heisz is a lecturer in the Managerial
Accounting and Control Group with the Richard
Ivey School of Business at the University of
Western Ontario in London, Ont. She teaches
numerous financial courses as part of the Syngenta
Grower University programs, designed to
help Canada s top producers run their operations
with increased confidence and profitability by
adopting the most effective business management
skills and techniques.
