5 Tips for Preparing for Your Annual Financial Review

An annual review can strengthen your farm and help prepare you for the future.

Whether you’re responding to a bank request for financials or getting ready to pay your taxes, an annual financial review enables you to see where your farm stands and make sure you have plans in place to keep it running strong over the short and long term. “Your annual review is an opportunity to sit down with your bank and have a conversation about how the year went and what to expect for the future,” says Lowry Perry, territory sales manager for agriculture banking at PNC. Here’s what you need to know.                        

1.     What it is:

“An annual review is like an annual checkup with your doctor,” Perry says. You’re making sure everything related to your finances is in order.

2.     What you should bring:

“The farmer should come to the table for this financial discussion with an understanding of their assets and their debts, from credit card balances to loan balances,” Perry says. “Nothing’s too big or too small to include in this conversation.” This can include:

• An updated financial statement that includes assets, liabilities and cash from the previous year, as well as plans for what you want to accomplish
• Questions and concerns based on that financial statement
• Account statements and other information related to investments, inventory, assets and debts

3.     How you should prepare:

“Be prepared to share anything and everything,” Perry advises. Just as you would with your doctor, be sure to discuss your overall (financial) health, along with any concerns, issues or changes. Problems are usually easier to address early on; don’t wait until things are out of control.

4.     What to discuss:

Discuss your present financial situation and plans for the future, Perry suggests. Topics could include:

• Your ability to pay down any debt you are managing
• Your debt as it relates to the worth of your business
• The amount of cash you’re generating
• Long-term plans for debt
• Expansion plans
• Long-term strategy
• Retirement plans for your workers
• Plans to protect your farm and family in the event you become disabled or incapacitated
• Succession planning
• Your banker’s insights into how your farm compares to other farms and ranches in the area

5.     When to do it:

“The best time to have your annual checkup is after year-end or after the major crop season — as soon after the end of the year as possible,” Perry says. This helps ensure that everything is fresh in your mind. “You’ll want to know what kind of crops you have in stores, whom you owe money to and who owes you money.” Taking care of your annual review near year-end can also help as you prepare your tax returns.

An annual financial review is an opportunity to get a big-picture look at your business, Perry says. Your banker can work as a partner, helping you prepare for long-term goals so that you don’t have to scramble at the last minute. “Let’s talk through ways to help you get where you need to be, whether that’s by restructuring debt, retaining more cash or refinancing equipment you bought with cash that depleted your working capital,” Perry says. “No question is out of bounds in this opportunity for good, open discussion with a partner in your business.”