July 2013
The Business of Farming

Improved Financial Records May Improve Profits

Farmers and agribusiness owners routinely focus on building and improving their farms and business operations. They stay on top of crop prices, read articles on a wide variety of topics, consider additional investment in new equipment to be more productive and devote many hours working hard to make their business the best it can be.

However, how much time do farmers, ranchers and agribusiness owners spend studying and analyzing their financial records to make changes for improved profits?

As accountants, we understand studying your monthly and yearly profit-and-loss reports can be painful for a variety of reasons. You may discover:

– You wasted money and time.

– You spent money when you should have saved it.

– You borrowed money to buy a piece of equipment you really didn’t need.

– You would not have had to borrow money to pay your taxes if you had spent more time calculating how much taxes you were going to owe.

– Your cash flow was not adequate for everything you wanted to do.

– People have been stealing from you for years, right under your nose.

Good farmers plan their next year’s crops carefully. They understand their planting costs per acre and their expected yield per acre. Similarly, good agribusiness owners know last year’s sales numbers and how they hope to improve sales this year. Studying and planning sales and cost of sales are critically important. However, your net profit is the number after all the expenses, not just cost of production.

Some farmers keep good financial records and some have very poor records for a variety of reasons. Sometimes, it’s plain, old procrastination by the farmer or business owner. Procrastination can be defined as both (a) avoiding doing things that need to be done or (b) leaving things undone for as long as possible. However, if you want to really look for improved profits, here are some things to consider doing, even if you don’t want to take the time or spend the money to get them accomplished.

Get monthly and year-to-date financial statements. Whether you are using a family member or outside accountant to do your books, really look at where your money is going each month.

Study year-to-year comparisons for all expenses, not just cost of sale or production expenses.

Make sure the same expenses are coded to the same expense accounts each month and year. Year-to-year comparisons are incorrect without consistent, accurate account coding.

Determine a budget for all expense items.

Sometimes, doing boring, painful expense analysis can pay off in more profits and improved cash flow. We suggest you talk with your accountant/bookkeeper for more ideas on expense analysis for better profits.