Automate Your Records Keeping & Accounting For Profitable Farm Planning

In this article, I explain the importance of establishing and maintaining reliable farm records keeping/accounting systems as it is a crucial requirement for successful planning & profitable management of your farm business.

As they say, if you do not record it you cannot measure it.

And if you do not measure it, you cannot control it. Which is the same thing as saying you cannot plan for it. In essence, I am saying that keeping detailed and accurate farm records and accounts is a crucial requirement for effective and profitable farm planning.

Your Farm NEEDS Diligently Kept Records/Accounts

One thing lacking in most agricultural entreprises out here is detailed and accurate records of activities that take place as operations are carried out.

For peasant farmers who are usually illiterate, it can possibly be considered pardonable if they can’t say what inputs (herbicide types, quantities etc) they used the past year. But for the growing population of literate farmers, there cannot be any excuse. Then again literate or otherwise, every farm owner who wishes to enjoy reasonably predictable profits MUST as a matter of priority keep and analyse detailed farm records.

Without detailed and accurate records, farm business planning and management effectively becomes a game of guestimations and unguided assumptions which rarely produce desired results with consistency.

To effectively manage a farm, the farmer needs to have ready access to extensive information concerning past costs and returns, input use, production levels, existing financial situation, including the physical conditions of the farm. S/he also has to know about likely future costs, future returns of production etc.

This information can be acquired from farm records and accounts, as well as from all farm sources like research/experimental stations, demonstration plots, universities etc.

In essence, the farmer needs to have records of what has happened before, is happening now and what is likely to happen in future.

What Exactly Can Farmers Do With Farm Records/Accounts?

The following are specific BENEFICIAL uses farmers will readily find for diligently kept farm records and accounts:

1. Farm Planning & Budgetting:

The most realistic way to plan farm production and prepare accompanying budgets is to refer to estimates based on historical data available from past periods of operation. If it’s a new farm, then other sources will be referred to.

2. Farm Performance Evaluation:

Without accurate physical and corresponding accounting records, it will be practically impossible to accurately establish how well a farm entreprise has performed over a defined period.With accurate physical records and corresponding records, evaluation of the farm performance is easy, simple and a matter of routine, PLUS one is sure of progress of the farm business over a time period.

Specifically, accurate records and accounts show how, within a period of time, labour costs or feed costs for example have either been increasing or decreasing, and how revenue from various entreprises has been increasing or decreasing either because of price changes or changes in physical production.

3. Daily Farm Decision Making:

Farm records and accounts are essential for day to day decision making especially because they show the strong and weak points in management. A farm entreprise may not be doing well because of a particular factor of production, but such a factor may be difficult to identify/isolate in the abscence of good records and accounts.

For instance in pig farming, it is reported that good farm performance depends on large and frequent litters, economical use of feed, mortality rate, marketing the pigs at the right weight etc. Without accurate records and accounts therefore, it would be dificult to identify which of these factors is contributing to low profits for instance. The records will show which areas need improving upon.

4. Securing Credit/Loan Support:

There is probably no bank which will not require a farm business to produce adequate physical records with the corresponding accounting records and the overall farm plan, before it can give credit/loan support.

Incidentally, this requirement helps both parties: the bank uses it to know the current state of the farm as well as offers advice. The farmer on the other hand will work to achieve his/her goals in order to fulfill his/her obligation to pay back the extended credit.

Banks need to be convinced that money given out will be used for what is being asked for, and that can only be done by presenting records of what one has already been doing.

5. Taxation & Insurance Purposes:

To avoid over or underpaying taxes, good records and accounts are essential. Insurance on relevant farm assets can only be done properly if records are available and accurate.

Summary

a. By keeping farm records and accounts, you, the farmer will be equipped to periodically evaluate your overall farm performance using three (3) simple but powerful ratios which I describe in full detail in my customisable on-demand talks on Best Practice Farm Performance Measurement and Improvement (Call 0803-302-1263 for details).

b. You will know where to place emphasis (using the 80:20 Pareto principle), and will be able see dangerous trends earlier and take needed evasive action.

c. Diligently kept farm records and accounts will help you determine where and/or when you are under (or over) estimating your farm costs (or sales/gains).

d. Good farm records and accounts help reliably measure the impact of unexpected market changes on the farm business’ bottom line e.g. policy and price changes announced by government.

In relation to the above last part, the use of custom software automation for records keeping would enable you punch in the new input prices and quickly see how badly it affects your planned/projected production and/or sales margins – as well as other key performance indicators.