another consideration to ensure you protect the assets of
your farm and those of your family from undue risk. If,
for example, you intend to start a costly and/or complex
operation, like the cheese dairy that we discussed in the
first article, it would be safer to incorporate the business
as a separate legal entity to safeguard the farm assets.
It s also important to understand the tax implications
of a second business. In order to minimize the family s
personal tax burden, for example, you need to consider
who will own the business and report income and profits
or losses.
Read Also
Producers aren’t panicking over tariffs and trade threats
The influence of tariff and trade uncertainity on farm business decisions.
As well, there are tax rules specific to farm operations
and you don t want to muddy the tax situation by introducing
a significant non-farming component. Therefore,
even if you plan a fairly simple diversified business, like
a small roadside market stand, and don t wish to incur
the costs of incorporation, you may still want to separate
the new business from the farm operation by setting
it up as a separate enterprise.
Separate record-keeping systems are also important
in order to distinguish between revenue and expenses for
the new venture and the farm operation. This will enable
you to readily determine the amount of revenue and
profits the new enterprise is, or isn t, generating in order
to make informed business decisions.
Establish a financial monitoring system
With a business plan and financial projections, you ll
have a solid foundation with which to monitor the financial
health of the new venture. To help you measure progress
toward your goals, and to alert you to any emerging
problems, review the following financial statements on a
regular basis:
” Cash flow statement to track the amount of cash entering
and exiting the business.
” Income statement to review sales, gross profits, expenses
and net profit/losses.
” Balance sheet to measure changes in liabilities and net worth.
Be on the lookout for slowing inventory turnover or
accounts receivable or a significant increase in the debt-to-
equity ratio. These could indicate financial problems
and you may need to take corrective action.
With careful thinking and planning, however, the
more likely scenario for your diversified business will be
success. This is what Al and Nan experienced with their
cheese business as a result of their thoughtful approach
to diversifying. They re the successful owners of a dairy
farm and also the proud owners of a burgeoning artisanal
cheese dairy.
Keep working at it, assess your progress on a regular
basis and adjust your business plan as needed. The future
in diversification is bright. CG
Coralee Foster is a partner of BDO Canada LLP (
www.bdo.ca)and chair of the firm s agricultural group.
She provides accounting, taxation, succession, estate
planning and consulting services to clients including
agribusinesses and primary producers. You can reach
Coralee in the Mitchell, Ont. office at
[email protected]or
519-348-8412.
