Dawn Melikant offers record keeping advice for farmers and ranchers
January 26, 2012
While record keeping and management might fall at the bottom of the list of daily tasks that need to be completed on the ranch, David Kohl, Virginia Tech, suggests that producers need to make it a top priority.
According to Kohl, ranchers should spend 30 percent of their time on management, and young producers should spend more than 60 percent of their time record keeping, reading articles and measuring the details of their operation.
Dawn Melikant, farm business manager instructor for Mitchell Technical Institute, offered some tips on accurate record keeping.
“Record keeping is boring, but it’s critical to the success of the farm or ranch,” Melikant said. “Accurate records can be used as a management tool to help measure efficiencies and make future decisions. These records can also help with income tax management; poor records can lead to paying more taxes. Additionally, these records help producers obtain credits, as they support loan requests while demonstrating management ability. Finally, these records help to price products for local sales, as well as evaluate land, lease and insurance needs.”
Melikant shared the essentials to keep track of when managing the ranch. First, maintain a business checking account, where business bills can be paid through. Keep cash transactions to a minimum and always keep receipts. Deposit all income, and never write checks payable to “cash,” as they can’t be tracked.
“Maintain a business checking account is a great first option, but most producers use cash accounting,” she said. “Track your income and record when you earn it; track expenses as you incur them, as well, whether or not cash has changed hands. Record expenditures such as advertisements, business cards, education, electricity, utilities and farm business travel.”
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When going to the lender, have a balance sheet, income statement, cash-flow statement and depreciation values ready for the banker to evaluate.
“Having these documents ready shows your lender you are mindful of how the business is doing and practice solid management practices,” she explained. “These records will help create a business trend line. Agriculture is cyclical in nature, so the ebb and flow is normal. It’s the major spikes that need to be evaluated and are easily identified with good records. Having accurate, maintained records makes it easy for you to understand your financial position at any given time of the year.”
In 2009, the average farm business spent $641,579 for farm business operating and family living, according to Melikant. On average, $31,000 comes from non-farm income, and in 2009, family living costs were $89,000, both trending upward.
“Most of this money is spent in the local community,” she said. “Ranch families are really the backbone of our economy. Without the small, micro-producer, the macro- or large businesses would not be successful.”
With so much time dedicated to production, many ranchers put record keeping on the sideline, waiting to get organized until just before seeing the banker or the tax person.
“For ranchers to be successful, I can’t stress enough how important is to just get started. Use a program like Quicken and get tracking! If you can manage 100 things 1 percent better each year, you can manage the operation to be on the right side of the financial divide. Form peer advisory groups to help measure your success; this is especially important for the beginning rancher. Also, form strategic alliances to share machinery and services, but be sure to get these agreements in writing.”
At the end of the day, Melikant said the bottom line is knowing the numbers. Know the difference between wants and needs, purchase assets that have positive rate-of-return, term loans no longer than the life of the asset, build real-working capital, diversify assets, plan for business marketing and invest in a solid education.
With these tips in mind, Melikant believes ranchers will be able to track their finances, set realistic goals for the future, obtain credit from the lender, pay fewer taxes and get on the road to success.