Farms are businesses and should be treated like businesses, and that starts with proper record-keeping. In fact, keeping track of your income and expenses can make or break your farming future, so thereâ€™s never a better time than the slow days of winter to start making this task part of your routine farm chores. Here are six simple steps that can help you get out of the red and into the habit of good record-keeping for long-term farming success.
1. Set Farm Goals
“Goal-setting is one of the first things you should look at,â€ť says Adam Barr of Barr Farms, a seven-generation family farm in Rhodelia, Ky. Barr, who has no background in business, says his biggest mistake was “being too ambitiousâ€ť when he returned home to help run his family farm, starting right away with a community-supported agriculture operation, followed soon after with broiler chicken andÂ pork enterprises.
After attending a Wholesale Success Workshop, he learned about simple ways to keep records, which he says changed his view of farming overnight. He then went on to secure a Seed Capital KY grant to hire financial consultant Ellen McGeeney to help him get on track.
“Farmers only have the winter to think,â€ť says McGeeney, COO of Kentucky beverage company Ale 8-One, who also offers business consulting to family farmers in her spare time. “Itâ€™s critical over the winter to set a few goals and set up your systems to answer some questions.â€ť Those questions can simply be what type of crops do you want to grow, do you want to live solely off your farm income, or how much profit do you expect in the first year?
2. Track Money In and Out
Farmers should track both income and expenses to determine profit. Barr carries a toolbox that contains not only his most-used tools but also materials to help him track both financial streams: a market-inventory sheet, sales order form for wholesale invoices, expanding file folder for receipts, journal to track his labor, calculator and his laptop computer.
“Keep a system for your expenses that is very simple,â€ť Barr advises. For example, he uses a debit card reserved for farm-related purchases and files the receipts in his wallet. Because his farm has five different enterprises, he writes down the corresponding enterprise on the receipt. When he has time, he transfers those receipts to his file folder, categorized by month. He then sets aside time each month to download his bank statement and tally up his profits.
3. Learn From the Data
Once youâ€™ve begun tracking your expenditures and income, it will help you see what farm products are working best for you financially and what time of year youâ€™re seeing your biggest profits roll in.
“Be open-minded when youâ€™re going into this process,â€ť Barr says. Crops that you so desperately wanted to do well might not be worth the effort you thought they were, while others might surprise you. Equipped with the data youâ€™ve been tracking, you can learn from your mistakes and begin to build benchmarks for success.
“The hardest part for the farmer is collecting data,â€ť Barr says. “But donâ€™t be afraid to get help with that. A farmer canâ€™t do everything.â€ť While Barr used grant money to hire McGeeney, he says he plans to invest some of his own money into business consulting for Barr Farms.
4. Evaluate Your Labor Time & Where Itâ€™s Used
Data can also help you evaluate your opportunity costs (i.e., the value of an action when given an alternate choice). One big area where this arises is your labor versus hired labor. “Most farmers think their own labor is worth zero,â€ť Barr says, but he records his labor in his journal so he can make decisions on where he will distribute it, based on his data, to maximize his profits going forward.
5. Use Available Resources
You donâ€™t have to be an accountant or a math whiz to start a new chapter in good record-keeping. There are myriad resources to help you along the way, such as other farmers, your county extension office, your own past records, grants and educational information offered through state or national organizations, such as Sustainable Agriculture Research and Education, and online software programs, such asÂ HanDBase and AgSquared.
6. Build Successful Habits
The key to good record-keeping is to set up a system that works for you, whether you hit the books weekly, monthly or quarterly. “Keep a system in place so when youâ€™re hard at work, you can come back to it when you have time in the winter,â€ť Barr says. With your data already collected and organized, making your farm-production plan for the new year will be easy.