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Record Keeping and the Importance of Being Prepared

Financial Literacy

Picture a typical scenario on the farm: you just wrapped up a long day of taking care of livestock, repairing equipment, and working on crop plans for the year, along with many other tasks on the “to-do” list. You return to the house and see a stack of bills and paperwork. Just what you had in mind for this evening, right? You decide to put it off until tomorrow, and then next week, and then next month. Before you know it your accountant is calling reminding you they need your records before the tax return deadline, and your loan officer stops by asking for updated financials for that upcoming loan renewal. What once was a less urgent and smaller task has suddenly become a higher priority and one that will take a larger block of time to complete. Will you be able to focus on this task when the other daily chores still need normal attention? Are you able to take this financial information and use it to manage your business, or be in such a rush that you can only focus on completing the task?

All of the above is a common occurrence, but should it be? Ideally, no, and we will provide some tips and encouragement on how to improve your record keeping and be more prepared to use financial information to manage your farm business and work with your lender.

How do you eat a big juicy steak? One bite at a time.

The same is true for record keeping. Few people enjoy sifting through months or maybe even a year or more of financial information at once. Beyond the amount of time this requires, if there are questions about a particular receipt it’s much harder to remember details months after the fact compared to only a few days or weeks when still fresh. It’s much more efficient to get in a habit of carving out a set amount of time once a week, month, or at a minimum per quarter, to focus on keeping your records current. While breaking this task into smaller bites may not significantly reduce the total time devoted to record-keeping over the course of a year, it often makes the task far less daunting. To the extent possible, try to stick to a schedule that will promote accountability and helps make this part of your normal routine, just like milking the cows every day or changing the oil in the tractor at regular intervals.

Keep it simple.

When many people think about record keeping they immediately equate this to needing to use professional software, which is certainly not the case. Yes, the fancy programs are available at one end of the spectrum but other options such as basic spreadsheets or even a handwritten ledger accomplish the same result. Another useful option is the Farm Credit Record Book, which is available in digital and paper formats. The key is to find something that works for you and your operation, and a conversation with your accountant or Farm Credit could offer methods to consider.

Keep the money in your pocket.

Do you like paying your accountant extra money to sort through your basic receipts, or getting lots of questions from your lender about your financials? If not, these are more reasons having good records and higher-quality financial information is an advantage. Yes, it might require more time and effort on your part, but will make it more efficient (and likely cheaper) at the next stages with your accountant or lender by focusing at that point on the fine-tuning. It could be useful to have conversations with your loan officer to better understand what Farm Credit expects to see in terms of quality financial information, and how it’s used to analyze your operation in making loan decisions. Also, generally the higher quality of the financial information, the faster the loan decision can be made. 

What type of financial manager do you want to be, today and tomorrow?

Do you want to manage the finances of your operation just by how much you have leftover (or not) in the checkbook at the end of the year? Or would you rather be more proactive with the numbers, setting goals, and increasing the profitability of your farm business? One example is farmers often don’t consider how one enterprise or another may impact the global operation because everything is lumped together financially. Consider a cow/calf operation that grows corn for silage to background weaned calves to heavier weights. Would it be more profitable to sell the calves after weaning and the corn as cash grain? Maybe, maybe not. Decisions like this can be tough to make without considering the numbers and the economic variables that change over time. Beyond the ability to make more informed changes to the operation in the present, record-keeping helps you determine goals for the future. Can you afford to update your milking parlor or an older piece of equipment? The neighbor plans to sell their farm in a few years, will you be in a position to buy it? Often, these are questions posed to your lender, but your lender is not your financial planner. They should be a trusted resource and part of the conversation, but ultimately you have to make the decisions as manager of your farm business. Often the first step is right in front of you – have you looked at the tax returns or income statement that your accountant puts together, or the balance sheet you filled out with your loan officer? Do you know how this information translates to income available to service debt or your overall financial health? If you need some guidance in this area, talk with Farm Credit to better understand this information to position your operation for that next goal.

In agriculture, nobody can fully predict the future as there are too many variables beyond our control. This is why it’s so important to have a strong handle on what you can control, and good record-keeping is a key element. All of this may sound obvious in concept but intimidating to implement. The key is to start small, make incremental changes so you don’t become overwhelmed, and remember that even running some rough math or having a high-level breakout of the records can provide valuable management insight for your operation. As always, never forget the resources available to assist with this such as your accountant, loan officer, and the many tools offered by the Farm Credit Knowledge Center.

Contributing Author

Cole Heizer, Credit Manager

Farm Credit of the Virginias

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