For the records: Better access to information leads to better financial decisions
October 3, 2018
The kitchen table is often the record-keeping hub on a ranch at tax time. While profitability measures and data now often go hand in hand and have replaced measuring profit simply by determining the bank account balance at year's end, the move from shoe boxes to computers can be challenging.
The South Dakota Center for Farm/Ranch Management at Mitchell Technical Institute meets producers where they are, quite literally, oftentimes at the kitchen table. The instructors, including Blaine Carey, visit the participating producers on their operations to help them move to online or computer-based records systems. Using their own records, and with one-on-one instruction, participants analyze and utilize the records to develop a comprehensive farm business plan.
The program is set up on a three-year, or six-semester basis, during which time the producer works to compile an accurate balance sheet.
"We're not the cattle counter or bale counter and we don't go bang on the grain bins, we just help producers get everything down so they can take it in and they do know where they are and can see their management decisions," he said.
Carey said there are a number of choices when it comes to accounting software ranging from QuickBooks to more farm and ranch specific programs like EasyFarm. EasyFarm, which is based in North Dakota, has a Chart of Accounts that is user friendly for agriculture producers and reflects the crops commonly grown and the government standard commodities.
The technology is there, Carey said, it's up to producers to use the technology in their own favor.
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At the end of the three years, the instructors are available on an hourly basis to help the producer compile end of year reports, farm analysis, and cash flow statements. As producers and bankers collaborate, having these documents online and at the ready can be a boon to producers and make the task of the banker easier. In fact, he said, many referrals to the program come from bankers.
"As margins get tighter and tighter with both crops and livestock, (bankers) are wanting to track more things and see more information," he said, "That allows them to be able to do that."
Online record keeping software can handle the huge amount of information that may have once lived in piles of papers in boot boxes. With the ability to track as many as 10 bank accounts and even sync to the statements online, the management of the information is centralized.
Carey said some of the producers who have worked in the program for a number of years enjoy the ability to walk into the bank and give the lender a balance sheet, a cash flow, and an analysis. Even more, having the documents updated with their specific information and understanding the contents, makes them more empowered managers.
As producers work to gather the information over several years to give them historical data on their operation, the South Dakota Annual Report can be utilized to provide accurate aggregate production numbers based on the program participants' data.
"On there, you can find corn on rented ground, corn on owned ground and then there are livestock numbers in there, too, on cattle," he said. "Then they go right down to the family average living expenses."
Just as record keeping is best maintained through out the year rather than all at once at the year's end, measures of profitability can guide producers every step of the way. An updated cash flow is what Carey said is accurate and useful. While farms and ranches are oftentimes similar, they're also different and, until a producer has several years of historical data specific to that operation, a cash flow helps producers make timely decisions as unexpected events and expenses arise.
"They have different input costs and land rent costs, and everything has to be figured on their operation," he said. "After we go through and get their financials and something to track their income and expenses for a year or two, we can start narrowing down that cash flow very specific to them."
Carey said the ability to go back and look at a three-year average is helpful, even though forecasting and cash flowing droughts and other ups and downs is difficult. Being able to look at the health of the cash flow can guide purchasing decisions and help producers know when they should be in contact with their lender.
The first step in moving to computer-based record keeping is choosing a software program and inputting information. Knowing the demands on producers, Carey goes to the farm or ranch to meet with the producer and get a feel for the operation, which he said can make the process less daunting.
"Everybody is very busy and sometimes production agriculture gets in the way of production agriculture," he said. "Taking the time to go through and reconcile accounts is key."
It's common to let the record keeping tasks go until the end of the year but keeping them current and keeping the cash flow current can paint a better picture of profit monthly rather than only annually.
"If you have it done throughout the year, they'll have a clearer picture of where they are all the time and can forecast what's going to happen," he said. "It's just taking the time to do it."