Financial management tips for farmers

Let’s face it, most folks don’t go into farming because they want to manage the books. But as most farmers know, capable financial management is critical to running a successful agricultural business.

Farm financials can include complex income projections and more, but it’s straight-up record keeping that forms the foundation of good fiscal management. A key part of record keeping is a basic cash flow statement that will tell you how much money is coming in and going out — and where it is going to or coming from. Here are five things to include in your farm’s cash flow statement:

1. What you bought and sold
   Capital purchases are things you spend money on for the business to improve your long-term assets. These can include: land, breeding livestock, buildings, machinery and equipment and titled vehicles for farm use. Capital sales would be any sales of these long-term assets. These should be tracked on an annual basis.
   
   
2. Money in (from the business)
   This category includes your business’ immediate sales for the year, such as market livestock, crops and product sales. Keep a record of what you sell, how much you sell, and how much you sell each item for. Other farm income can include custom work, government and insurance payments, property insurance payments and other miscellaneous income.
   
   
3. Money out (for the business)
   With agricultural businesses, there’s no shortage of expenses to track. By having a clear sense of where your money is going can help you cut unnecessary costs. Expenses can include seed, fertilizer, insurance, storage, hauling and trucking, marketing, livestock feed, veterinary expenses, livestock supplies and bedding, contract workers (foot trimmers, grain haulers, custom raising). Operating expenses can include loan interest, fuel and oil, repairs (machinery, buildings, fences, etc.), hired labor and payroll, land and building rent, machinery leases, utilities and taxes.
   
   
4. Personal income and expenses
   If you’re an owner operator of an agricultural business, it’s easy to blur the lines between home and business. Know your family's living expenses and identify the income you need to draw from the business in order to cover those expenses. Record inheritances or cash gifts.
   
   
5. What’s in your inventory
   Managing inventory can help you to managing expenses. Keep records of breeding stock, feed and seed supplies and grain stored so that you know what you need and what you have on hand