Jill Kohut, Vice President, Credit, Farmington 
Balance sheets are a valuable tool for assessing financial health. Creating a balance sheet at the end of each year and reviewing historical statements can provide meaningful insights into your financial progress.
Once your balance sheet is complete, focus on two key indicators: net worth and liquidity.
- Net worth is calculated as total assets (the value of everything you own) minus total liabilities (everything you owe).
- Liquidity is determined by subtracting total liabilities from current assets (assets that can be converted to cash within 12 months).
It is essential that both net worth and liquidity remain positive. However, the most telling measure is the year-over-year change. An increase in both figures compared to the previous year typically indicates a profitable operation.
Conversely, adverse conditions such as unfavorable weather or declining commodity prices can negatively impact cash flow, net worth, and liquidity.
Once you have several years of historical balance sheets, it is helpful to go back and see how your financial standing has changed. If you notice a positive trend, this is a good indicator of a sound operation. If you notice a negative trend in your net worth or liquidity, there are many things you can do to change this trend including selling unused equipment to pay off debt, reducing input costs by prepaying for items and receiving a discount, and purchasing crop insurance to offset some of the weather risks.
