Good financial practices are key to the success of your farming business, but many businesses fail to
implement them. Most farm owners know that poor financial management is a major cause of poor business performance and growth, but still fail to carry out the financial tasks that are necessary to keep things running smoothly and successfully. If all goes well, the close is a routine process that does not attract much attention from management or business owners. But it’s a completely different story if the numbers are late — or wrong. We will look at some of the best practices to assist with keeping your bookkeeping and financial statements current.
Begin by creating a month end close process with your accountant. This is done to prevent lost revenue, poor tax planning and missed financial opportunities. Beware…waiting until the end of the year to close out everything is often an overwhelming process. Trying to evaluate an entire year’s worth of transactions is a tedious process and often it is too late to do anything about any events that happened earlier in the year.
To create a monthly close process, the major tasks can be broken down into a series of steps. Try these tips for a streamlined month end close:
• Create a detailed closing schedule. Refer to this schedule often to keep yourself on task.
• Create a closing procedure with checklists. This will keep you from missing important steps.
• Conduct a pre and post close meeting focusing on the status of any open items from the last close and any open items that need address from the current close and create a plan to complete these tasks.
• Analyze data from month to month focusing on any item out of the ordinary and use this as an opportunity to discuss with your accountant instead of waiting until year-end tax preparation.
An example of a typical monthly closing checklist will typically address these tasks:
• Perform bank reconciliations
• Perform other balance sheet reconciliations or review of accounts with substantial activity such as accounts receivable or payable
• Review accounts receivable aging for past due accounts
• Review inventory balances for reasonableness (both quantity and price).
• Recording of certain recurring journal entries for items such as depreciation or prepaid expenses.
• Review of repair and maintenance accounts to determine if an item should be capitalized.
• Review and reconciliation of debt /line of credit balances and potential review of debt covenants
• If monitoring key performance indicators, look at variances from actual results.
• And on a periodic basis, look at tax projection based on financial results.
Our team helps many of our farmers with this process. Most are amazed at just how much following a monthly process can benefit their business. We would be happy to help you get started.
Brian E. Ravencraft, CPA, CGMA is a Principal with Holbrook & Manter, CPAs. Brian has been with Holbrook & Manter since 1995, primarily focusing on the areas of Tax Consulting and Management Advisory Services within several firm service areas, focusing on agri-business and closely held businesses and their owners. Holbrook & Manter is a professional services firm founded in 1919 and we are unique in that we offer the resources of a large firm without compromising the focused and responsive personal attention that each client deserves. You can reach Brian through www.HolbrookManter.com or at BRavencraft@HolbrookManter.com.