Ag Financial Fitness: 10 Business-Critical Bookkeeping Musts

Farm Economics

Tough times call for carefully managing your finances with these 10 best practices

   - Guest Post By Alan Grafton, Director, K·Coe Isom’s AgKnowledge

farmer-at-computer-long

Are you following the money in and out of your farm or ranch? Every dollar? Every month?

Keeping track is critical. Accurate financials not only reveal what you’re spending or earning. They also make it possible for you to form a budget and make decisions. They allow you to develop a marketing plan. They make it easy to provide your lender with precise numbers.

But monitoring your farm income and expenditures must be done consistently. Every month, you should be tracking all those receipts, records and other financial information to remain organized and accurate.

 

Follow these bookkeeping best practices to stay on top of your finances: 

  1. Avoid too many codes or inconsistent coding. It’s impossible to track what your farm is doing if there is no consistency. Most farmers and ranchers use an accounting software that designates farm finances to various categories. Be sure you label and spell your vendors and other groupings the same way every time. For example, if it’s John Deere, stick with John Deere, not the occasional J.D. Also, stay consistent in your coding. “Seed” doesn’t go under a “chemical” heading. A “repair” doesn’t belong under “supplies.”

 

  1. Put accruals in the year where they belong. When it comes to planning and measuring your farm’s financial success, one of the most important practices is accrual or crop-year coding. In a 12-month period, you will almost always have three different years of income or expense represented. It can sometimes be more, depending on how long you are storing grain. Coding to the year the transaction belongs is an absolute must.

 

  1. Don’t mix capital expenditures with ongoing farm expenses. Growers are always investing in their operations. In some cases, you may go to your lender to finance these improvements, but often these are just rolled into the operating cost. These costs often don’t represent yearly production costs. If these are not identified, it’s easy for them to get lost. This was very common a few years ago when commodity prices were higher. In these tighter margin times, however, it may even become necessary to recapture some of this investment and amortize it with your lender. This will allow you to move these funds back to working capital.

 

  1. Be aware of the personal expenses your farm is covering for you and your family. We’re all in our jobs to make money, but sometimes what the farm is providing gets lost amid all your other farm business expenses. Cell phone bills for the kids, life insurance, personal property taxes – are you tracking these? And are you sure this kind of spending is sustainable?

 

  1. Does your equipment match your farm needs? Spend time analyzing the capacity of your farm equipment. Do you have more horsepower than you need? Could you operate with fewer tractors or other equipment? Should you consider leasing rather than buying, or sharing equipment with another grower?

 

  1. Check prices and quantities on seed, fertilizers and chemicals. Don’t just call a vendor and order what you need. Shop around to see if you can get a better price or check national average input prices FBN Price Transparency. When the bill comes in, make sure you’ve received the quantity you’re being charged for. Mistakes happen all the time.

 

  1. Manage your checking and loan balances. Reconcile, reconcile, reconcile. Know what’s in transit. If you’re closely attuned to your checking account, you may be able to draw less from your loan while still having enough funds to operate your farm or ranch.

 

  1. Make sure you’re farming the acreage amount you think you are. This is especially important if you’re renting land. Maps don’t always match up with the actual landscape. What may be noted as 1,000 acres could actually total 50 or 60 acres less when you consider turns-rows, ditches and other land variations.

 

  1. Double-check your crop inventory. Shrinkage can lower the amount of grain that went into storage. Make sure you account for the actual amount of inventory that comes out of the bin, not what went in.

 

  1. Know your own cost. What you hear at the coffee shop or read in a university document is not your cost. Every farm has a different situation, overhead and other costs. Don’t rely on others. Figure this out for yourself.

 

There is no silver bullet that will make your farm perfect. But every step counts. Every farm cost – from fuel and labor, to equipment and rent – adds up. If you can’t or won’t track how your dollars flow, get help. It’s that important to the success of your business.

 


 

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