Good Record Keeping Produces Good Results

Most farmers prefer planting, milking, getting dirty, or working on equipment. Doing paperwork and keeping accurate financial records isn’t always a priority.  However, good record keeping produces good results.

Did you know that good record keeping can help you determine the direction your farm is going? Accurate and detailed financial records can be used to effectively manage cash flow, explore and make investments or liquidate assets. All of these decisions help the profitability and growth of your farm.

Did you know that good record keeping can help you make good business decisions? Farmers may rely on trusted partners such as consultants, agriculture associations and peer groups for input in decisions. All of these are valuable assets but so is accurate and timely recording keeping.  Research has shown understanding of the business’ strengths and weaknesses will assist a farmer in making decisions. Real and accurate data of past performance will help you predict the future performance for the next season.

Did you know that good record keeping helps with IRS reporting? Accurate, organized and complete record keeping saves time and frustration during this annual event. Particularly when IRS reporting competes with planting season. There is so much to do before planting, gathering a year’s worth of documents for your tax preparer is not always at the top of the list.

Did you know that good record keeping will prevent missed opportunities? Readily available financial information reflects a factual status of the farm when applying for government assistance programs, grants and loans. All too often these opportunities have a short application window so having readily available results are critical.

Every farmer has their own way of “keeping the books”. It should be simple and easy with regular input. Most importantly, good record keeping needs to be habit. If you have a process, maybe one of these ideas can improve your process. If you have no process, then consider all of these ideas to assist you in farm operations today and into the future.  Here are ideas to consider:

1) Have separate accounts: Several farms are often sole proprietorships or family partnerships. Therefore, many farms may simply use their own bank accounts and credit for farm purchases. As easy as this is, it also comes with challenges. Maintaining separate accounts can avoid confusion, control of money and make reporting easier when it comes to taxes, accounting, forecasting, and budgeting.

2) A balance sheet records the farm’s assets and liabilities. It lists assets, liabilities, and net worth (owner’s equity), and represents a snapshot of the farm business as of a certain date. Examples of assets and liabilities include:

3) An income statement is a profit and loss statement for the farm. This document is valuable when a farm wants to borrow money, apply for grants or participate in government assistance programs.  Examples of income and expenses include:

4) A cash flow statement tracks the movement of money in and out of the farm. A cash flow statement helps identify any differences between money expected and actual money on hand. Think of a cash flow statement as a “check registry” with debits and credits.  Examples of cash in and cash out include:

Organizing farm finances may seem like a daunting and boring task. Everyone has some type of a record keeping system and it may be done differently.  Good record keeping requires good habits, regular review and inputs as well as being simple and applicable to the farm so that results are readily available. A dedicated bank account, a balance sheet, an income statement and/or a cash flow statement, are options to assist a farmer when understanding the financial health of their farm. Whatever method is adopted is generally acceptable providing it serves the purpose of providing insight about the financial health and readily available “numbers” about your farm.  Finally, there are local resources available to help a farmer at UW-Extension at or at the State level. Your local accountant and tax advisors can also assist. Remember you are not alone when it comes to good record keeping.

Kathy Pennington serves as the Treasurer and a member of the Policy Committee for the South Central Wisconsin Farmer’s Union. She lives in rural Wisconsin, possesses an MBA and has been preparing small business taxes for several years. She also serves as the Chair, Town of Brooklyn and a Green County Supervisor as a member of the Highway and Zoning committees. These experiences and positions enable her to advocate and support farmers and other agricultural activities.