Eide Bailly CPAS & BUSINESS ADVISORS A version of this article originally appeared on EideBailly.com. Financial Management in Your Ag Operation Can Prepare You for What's Next Managing the finances of your agricultural business is just as important as how you handle the nuts and bolts of operating it. While there are plenty of uncertainties you can't control, like inflation or weather, focusing on financial management can help you understand: What areas of your business are truly profitable If you're increasing the net worth of your business Finances are Vital to Your Ag Operation Project cash flow and profit across the business in three years, five years, or longer Understanding Your Finances Future financial predictability begins with understanding the basics of your farm's finances, including: Financial statements: Show the cost of production and any profit margins across the business. Income statements: Help you understand which areas of the farm are profitable and where you need to cut corners to improve. Balance sheets: Give visibility into the business' net worth over time. Is profitability increasing? Monthly or quarterly cash flow statements: Used to determine if you're spending money wisely. Where are your expenditures? Are they decreasing or (predictably) increasing? Net worth statements: Summarize income versus expenses and the real cash you earned over time. What Financial Metrics or KPIs Should You Monitor? Key performance indicators (KPIs) are the backbone of business predictability. Are you trying to improve your business profit by a specific percentage point each year? Are you trying to increase cash flow to prep for retirement and a successful transition? Are you trying to expand without taking on more debt? KPIs can help measure your progress toward these and other business goals. KPIs help you make decisions based on facts and not instinct. While there are elements of art and science in agribusiness, KPIs are the science that keeps your business running. You can track all kinds of metrics in a farming operation, but there are three critical KPIs to consider over time: Profitability: What operational factors can (and should) change to increase profit? -Size: Is the business big enough to weather market shifts while generating an acceptable income level? Growth: Are you meeting your need to expand, and is this growth achievable and sustainable? Profitability Three financial measures usually fall under the profitability KPI: return on assets, equity, and operating profit margin. These metrics gauge the relationship between your farm's output or net operating income and inputs such as asset turnover ratios or debt loads. Size Size and profit are two sides of the same coin. The question is whether sales volume is enough to generate profit for the long haul. Is the profit enough to meet your needs? How big does your business need to be to go beyond break even? Eide Bailly CPAS & BUSINESS ADVISORS A version of this article originally appeared on EideBailly.com . Financial Management in Your Ag Operation Can Prepare You for What's Next Managing the finances of your agricultural business is just as important as how you handle the nuts and bolts of operating it . While there are plenty of uncertainties you can't control , like inflation or weather , focusing on financial management can help you understand : What areas of your business are truly profitable If you're increasing the net worth of your business Finances are Vital to Your Ag Operation Project cash flow and profit across the business in three years , five years , or longer Understanding Your Finances Future financial predictability begins with understanding the basics of your farm's finances , including : Financial statements : Show the cost of production and any profit margins across the business . Income statements : Help you understand which areas of the farm are profitable and where you need to cut corners to improve . Balance sheets : Give visibility into the business ' net worth over time . Is profitability increasing ? Monthly or quarterly cash flow statements : Used to determine if you're spending money wisely . Where are your expenditures ? Are they decreasing or ( predictably ) increasing ? Net worth statements : Summarize income versus expenses and the real cash you earned over time . What Financial Metrics or KPIs Should You Monitor ? Key performance indicators ( KPIs ) are the backbone of business predictability . Are you trying to improve your business profit by a specific percentage point each year ? Are you trying to increase cash flow to prep for retirement and a successful transition ? Are you trying to expand without taking on more debt ? KPIs can help measure your progress toward these and other business goals . KPIs help you make decisions based on facts and not instinct . While there are elements of art and science in agribusiness , KPIs are the science that keeps your business running . You can track all kinds of metrics in a farming operation , but there are three critical KPIs to consider over time : Profitability : What operational factors can ( and should ) change to increase profit ? -Size : Is the business big enough to weather market shifts while generating an acceptable income level ? Growth : Are you meeting your need to expand , and is this growth achievable and sustainable ? Profitability Three financial measures usually fall under the profitability KPI : return on assets , equity , and operating profit margin . These metrics gauge the relationship between your farm's output or net operating income and inputs such as asset turnover ratios or debt loads . Size Size and profit are two sides of the same coin . The question is whether sales volume is enough to generate profit for the long haul . Is the profit enough to meet your needs ? How big does your business need to be to go beyond break even ?