Now we need to calculate how much free cash your business generates so we can know whether it can support your retirement needs and the lifestyle needs of your successor(s). Since that always feels like a really big job, we’ve tried to simplify it without losing any of the important things.

This section will let you enter key financial information and calculate your surplus cash flow. Then you can compare that to the amount you’ll need to fund your retirement and the amount your successor will need to earn a comfortable living.

Collect and prepare financial data on the farm

Good decisions come from good information. Having an accurate set of financial statements for your farm is important because decision-making with incorrect information can cause major problems. If you’re not clear on how to prepare those, you’re not alone. Most business owners get their accountants to do these because it can be quite complicated.

The financial statements you will need for this analysis are:

1. Accrual Income Statement

2. Accrual Balance Sheet

3. Cash Flow Statement

From these statements, you will need the following figures:

• EBITDA (Earnings before interest, taxes, depreciation and amortization)

• Details on the debt held by the farm including accounts payable, lines of credit, loans/mortgages and leases – specifically repayment amounts/commitments and conditions

• Amount of money owners take out of the business that is not recorded as wages