Record keeping and data management is an ongoing issue for the industry, understanding whole business financial performance is vital to understanding the business you manage.
Your accounting software will give you an insight into how your business is performing through the various reports it can generate. There are three major statements that provide insight into business performance, the income statement, cashflow statement and balance sheet. Altogether these are known as the three pillars and analyze the same business from multiple angles.
The Income Statement
- Determines the profit or loss of the business
- Considers several non-cash costs including inventory change, depreciation, and owner wages
- When multiple years of this statement are compared some powerful information can be extracted that can inform business decisions
The Cashflow Statement
- shows the movement of funds through the business for a period,
- Can be recorded on an annual, half-year, quarterly or monthly
- The cashflow statement can be separated into operational, capital expenditure, investing and financing expenditure. When this is compared for consecutive years a clear picture of where the business’ income is generated, and expenditure used.
- This is also known as the statement of position and shows the assets and liabilities of the business
- This shows the equity position of the business as well as how leveraged the business is
Cashbook recording can also assist in keeping track of expenses to understand the business better. It is a financial journal that allows all receipts and disbursements to be recorded in chronological order as the balance is updated on a continued basis and reconciled to bank statements each month. It is an important part of bookkeeping that is especially helpful for monitoring spending and making it efficient to determine cash balances at any point in time.
There are many programs and software available for bookkeeping which can include features such as live bank feeds, budgeting capabilities and automatic payment options. Having cashbook recording set up can make budgeting easier by being able to refer to previous year’s expenditure and breakdown the costs.
Budgeting can be used for:
- Forecasting scenarios
- Setting realistic targets for the business
- As a tool for decision-making
- Examining the feasibility of capital improvements or an acquisition
How to start
A good set of chart of accounts:
- You will have a chart of accounts in your accounting software, review these and ensure they are set up in a way that allows you to extract information about your business
- Work closely with your accountant to do this, remembering as the manager of a multimillion-dollar business your accounting software should provide you with information to make business decisions
Below is an example of the main headings commonly used in the chart of accounts for a beef cattle operation.
Additional subheadings can also be added underneath these to breakdown expenses & income into more detailed categories.
Using financial data in combination with herd data can provide powerful insight into the performance of the operation. This information can be used in tandem to pinpoint the strengths and weaknesses of the business. As mentioned above, there are a multitude of programs that have the capability to record and process this data and make it meaningful and easy to manage.
With many options available, all with varying levels of detail, it is important to choose something that is user friendly and suited to the needs of the specific business. This will enable consistent entries, which as stated above is essential to establish a quality data recording system
Consider attending a Business EDGE workshop where this is explored in more detail.
Business EDGE is a two-day financial and business management training workshop for all livestock producers. The aim is to enhance producer knowledge and skills in basic financial and business management to improve business efficiency and profitability.