If you want to dig deeper into the world of farm business
accounting or look for other record keeping and organization
systems that might improve your operation, the following
resources will be helpful:
Kansas State University offers a free 16 pg. booklet
entitled Farm Record Keeping With The Kansas
Farm Account Book that can be downloaded at
agec2/mf408.pdf, or ordered from Production Services,
Kansas State University, 24 Umberger Hall, Manhattan,
KS, 66506-3402; (785) 532-5830.
Ohio State University offers a complete manual entitled
Computerized Farm Record Keeping on-line
b890/b890_3.html , or you can order it from OSU
Media Distribution, 385 Kottman Hall, 2021 Coffey Rd.,
Columbus, OH, 43210-1044; (614) 292-1607.
University of Missouri Farm Accounting Resources,
including the Missouri Farm Business Record Book, the
Missouri Farm Tax Record Book, Quicken Farm Accounting
Software, Quick Books Farm Accounting Software, PC Mars
Farm Accounting Software, and other informational resources,
can be found on-line at http://agebb.missouri.edu/
mgt/mofar/, or ordered from UM Extension Publications,
2800 Maguire Blvd., Columbia, MO, 65211.
FINPACK, a computerized farm financial
planning and analysis system, made up of FINLRB (long
range business planning), FINFLO (cash flow analysis),
and FINAN (year end analysis), gives you the tools you
need to effectively use your Quicken records in managing
your farm. This package can be found on-line at www.cffm.umn.edu,
or ordered from the Center for Farm Financial Management,
Dept. of Applied Economics, University of Minnesota,
1994 Buford Avenue, St. Paul, MN, 55108; (612) 625-1964
or (800) 234-1111.
Farm Files is an agricultural software
package, “designed by a farmer, for the farmer”,
that can help you manage crops, livestock, and accounting
for your farm that can be found on-line at http://www.farmfiles.com/
?source=overture/, or purchased from Choice Technologies
Inc., 921 2nd Avenue SW, Spencer, IA, 51301; (888) 983-4402.
You can find a great listing of MANY more financial
software packages on line at http://www1.agric.gov.ab.ca/
Some Extension Offices and land-grant universities
offer classes on farm record keeping and accounting
(frequently inexpensive and sometimes free), so be sure
to check these resources!
If you want to find ways to get more generally organized
around your home or office, these resources are worth
Getting Things Done by David Allen
is an excellent, innovative book on personal organization
and time management. Though it is geared toward traditional
offices and 9-5 workers, the principles can also be
applied to the home or farm office. It can be purchased
through bookstores, or via http://www.davidco.com/
Consider getting help from a professional organizer.
(Yes, believe it or not, there are people who make a
living helping other people organize their files and
clutter!) Services range from basic filing to complete
office reorganization and clutter removal, all according
to the kind of help you want. To find an organizer in
your area, contact:
be honest. Many people, including farmers, don’t keep
financial records. And even those who do keep records do it reluctantly.
Why? Probably because we assume that good record keeping takes more
time and organizational skills than we think we have.
However, as a farmer, the truth is that you may already be saving
and organizing a lot of the information you need to keep good records
and develop useful cost information:
- Do you keep a bank account for your farm?
- Do you keep your farm bank account separate from your family
- Do you keep your receipts from your purchases and store them
in one place?
- Do you write receipts from your sales and keep them on one place?
- Do you enter your sales and purchase receipts into a ledger
(either on paper or on a computer)?
- Have you made a written inventory of your equipment and supplies
within the last two years?
- Have you made a written inventory of your products and/or livestock
in the last year?
If you answer “yes” to one or more of those questions,
then you already have the foundation of a simple, functional record
keeping system, one that can help you calculate your costs.
It’s true! If you have completed any of those tasks, then
you have the skills (and most of the time) you need to do one or
two other tasks on that list. And those three or four pieces of
financial information, added together, can help you figure out a
large portion of your product costs. After all, you have probably
experienced the way that how focused, organized training can create
success on the track, field, or other sports arena. Certainly your
business and livelihood deserve the same kind of focused, organized
The goal of this fact sheet is to help you tap the full
value of your existing records (even if they’re very simple)
to determine product costs. Along the way, you will also
find a few realistic tips to improve your records and organizational
systems, which can help make your cost calculations and business
planning more manageable and effective. You may even learn to appreciate
and enjoy record keeping more than you do now! However, let’s
be realistic; if you’re able to make the most of the records
you already have, that’s good enough.
Let’s also be realistic about the amount of information and
guidance we can provide in a short fact sheet. Entire text books,
college courses, and software packages have been devoted to farm
record keeping, and it’s unnecessary to reinvent those wheels
here. Instead, we will: 1) give you some basic, practical record
keeping advice that you can use right away; 2) show you how those
basic records can help you calculate product costs; and 3) provide
a resource listing that you can tap for more in-depth information
and guidance if you choose.
COMPUTER OR PAPER? THAT IS THE QUESTION.
This is your first and most important decision. Do you want to
keep your records entirely on paper, or do you want to keep them
on a computer (which will probably still involve a little paper)?
There is no right or wrong answer to this question. The right answer
is the one that works best for you.
Know yourself, and be honest. If you own a computer and use it
regularly, use it occasionally, or have used a computer once or
twice and find it more interesting than overwhelming, then the computer
is probably your logical choice for record keeping.
However, if you don’t like computers, or have tried to use
them but still aren’t comfortable with them, then don’t
use them! Keep your records on paper for now, and don’t spend
any time and money on computer hardware, software, or training;
if you don’t like it, it won’t help you in the end.
Whichever you choose, this decision is important because it will
help you focus your record keeping efforts most quickly and effectively.
Paper records work just as well as computer records (especially
if you’re good with a calculator), so pick the format you
like best. And while it’s important to stick with your choice
right now, it is reversible later on. When you learn to
keep good paper records, they’re easy to enter into a computer
if you learn to like computers better in the future. So don’t
agonize over this decision. Just choose the format that you like
best at the moment, and go with it consistently!
BASIC TIPS TO IMPROVE ANY RECORD SYSTEM
The following points, listed in order of importance, are universally
helpful to both paper and computer record keeping systems. (If you’re
already doing all these things, great! You can move on to the next
- Run your farm business through a bank. Hopefully
you’re already doing this, but if not, start now! Banking
offers a logical, easy way to keep basic financial records. Deposits
and check writing records can help you track a large portion of
the money flowing to and from your business.
- Keep your farm bank account separate from your family
bank account. Again, you’re probably already doing
this, but if not, start right away! A clear definition between
your business and family finances will help you make better financial
decisions on both fronts. This practice can also provide financial
protection (depending on how you incorporate your farm business)
and a clear mechanism through which to pay yourself for your work.
- Record detailed information on every sale and purchase.
Every time you sell anything (crops, value added products,
equipment) or buy anything (inputs, office supplies, equipment),
always record the following data:
- name of buyer or seller,
- weights (when appropriate),
- unit prices, and
- total price.
Record all this information in the same place on every receipt,
and also include it as you transfer each transaction into
your accounting records.
- Pay by check or charge, rather than cash, when possible.
Checks and charges are much easier to record and track than cash
payments. Set up charge accounts with the business(es) you buy
from the most, and pay your account(s) regularly. This practice
provides another way to itemize and record your expenses, and
(in the case of charges) it can also bolster your credit rating.
- If you pay cash, get a receipt! You probably
already do this, but if you don’t, here’s a reminder.
Receipts are the most fool-proof way to remember and record cash
transactions. Without a receipt, it’s easy to forget how
much cash you spent, where it went, or why.
Keep all your new receipts in one place, and put them
there daily. Whenever you get new receipts, put them
in the same place in your wallet or vehicle so you can always
find them easily. Then, when you get back home, use some kind
of “catch-all” (a box, basket, or file) to store your
new receipts until you have a chance to record them in your account
books (vehicles or wallets aren’t very good receipt storage
places). And put that catch-all in a place that’s easy for
you to use daily! Make receipt-filing a natural part of your daily
habits; it should only take a minute, literally. For example,
put receipts in a file on your desk as you head in for your evening
meal, or stash them in a basket on your bureau as you remove your
wallet from your pants at bedtime. Whatever works for you, as
long as you do it daily!
- Use a pencil (not a pen) to keep your paper records.
Pens are appropriate for receipts, but use pencils to balance
your check book or to log entries in your account book. Pencils
allow you to easily and neatly correct mistakes.
USING RECEIPTS AND BANK RECORDS TO GATHER
The best way to approach record keeping and cost information gathering
(and any formidable task) is to break the work down into manageable
steps. Here are some basics to get you started:
Step 1: Make a list of ALL the products your farm produces.
This seems like a simple question, but can you really name all
your farm’s products? Get a piece of paper and write a list
of every item your farm produces (for sale or on-farm use), and
don’t leave anything out! Do you sell a few dozen eggs from
your flock, or a few bunches of cut flowers from you home garden
each week? Do you produce hay, silage, or compost for on-farm use?
Do you sell tomatoes, pumpkins, sweet corn, and feed corn and
wheat? Do you trade your manure with your neighbor farmer for hay?
Do you process and sell jams and pickles? Include it ALL, listing
each product individually. The length of your list may surprise
you! (Be sure to write this list on paper; physical
writing is an important part of the process!)
Step 2: Group your products into categories. You
might include your field corn, wheat (and possibly the hay and silage)
in a: “Field Crops” category. Consider grouping the
tomatoes, pumpkins, and sweet corn under “Production Vegetables”,
labeling the jams and pickles as “Value Added”, and
putting the compost (and possibly the hay and silage) in a “Farm-Use
Products” category. And the eggs and flowers could be captured
under “Miscellaneous Small Stuff”. However, these category
titles are just suggestions. There are no right or wrong
categories. Choose ones that make the most sense to you for your
business, and make sure that each of your products ends up in a
category. (Try not to list a product in more than one category,
but if you can’t decide which category is best right now,
use two, and then make a note to narrow it to a single category
Step 3: Create General Operating and Overhead expense categories,
too. Some expenses will obviously fit in one of your product
categories, such as corn seed and canning jar purchase receipts,
or wheat and tomato sales slips. However, receipts for tractor repairs,
mortgage and tax payments, or sale of your old combine usually do
not fit in any one product category. Therefore, you’ll need
to create categories such as “Equipment/Depreciable Assets”,
“Office Supplies”, and “Building/Property Maintenance”
in order to capture these more general expenses and income. Again,
choose categories that work best for you and keep them as simple
and straight-forward as possible.
Step 4: Create folders (paper or electronic) for each category,
and, in each folder, put an accounting spread sheet for each product
that falls in that category. This organizational plan works
equally well on paper or on your computer accounting program. As you
do this, remember that some of your category headings will probably
change once you start using and improving your system. Stay flexible
and, if you’re working on paper, consider writing your category
names in pencil on your file folders for the time being.
Step 5: Also create paper folders labeled “Recorded
Expense Receipts” and “Recorded Sales Receipts”
(even if you’re working on computer). You will need
these files to store your paper receipts once you’ve recorded
their information in your accounting system. These two folders will
be used, along with your bank account book, to clarify your whole-farm
Now that you’ve set up this simple system, it’s time
to start plugging in the numbers:
Step 6: Enter data from your new receipts (both sales and
expenses) into your banking account book (on paper or computer)
regularly. Do this as often as you can, and make it
a basic part of your routine! Once a day is ideal (if you have that
many receipts), but once a week is fine and more realistic for most
farmers. If you can’t manage once a week, then enter receipts
once every two weeks, or once a month at the bare minimum. The goal
is to keep the pile of in-coming receipts small, because, as we
all know, big piles of paper can put a screaming halt to progress.
Step 7: Once you’ve completed the bank entry, enter
the information again on the product spread sheet(s) in
the category folder. Enter the same information you included
in your banking account book (listed in Tip 3). If you’re
working on paper and have a photocopier, you can also make a photocopy
of each receipt to include in the category folder, too, if you want.
(If you do this, be sure to write “copy” on the copy,
and note the location of the original.) But if you don’t have
a photocopier, don’t worry about it; the copies aren’t
a necessity. If you enter receipt information on more than one product
sheet or category folder, be certain to make a note next to each
entry to cross-reference it, to avoid double counting.
Step 8: After recording, collect the original receipts
in your “Recorded Expense Receipts” or “Recorded
Sales Receipts” folders.
There! You’ve done it! You’ve just collected a lot
of your important cost information in one place!
After you set up your initial folders and account sheets (1 to
4 hours of initial work), the cost information collection process
should take only 10-30 extra minutes a week, if you do it as part
of your weekly chores. To calculate a product price using this system,
you can easily plug the data from that product’s spread sheet
into an enterprise budget (see Pricing Fact Sheets 4 and 5). This
system may not capture every penny of your costs, but it
will put you a long way toward a good calculation.
The key to success with this or any record keeping system
is simple: USE IT REGULARLY! If you enter your receipt
information into your accounting system routinely (either
daily, weekly, or monthly) you head-off the problem of “paper
pile-up”, the downfall of any good record keeping system.
If you’ve already got an overwhelming pile of paper on your
desk, just gather up the pile, put it in a box or file labeled “Before
(today’s date) “, and set it in a corner of your office
Today is a clean slate and it’s time to move forward. Start
using your new record-keeping system with this week’s receipts,
and be vigilant about keeping up with your current receipts until
your new system is a normal, natural part of your daily or weekly
routine (Three months? Six months? You’ll know when.). Once
your system becomes second nature, you can then tackle the box or
file of old papers and add them to your system, if you want to.
Just make sure you keep rolling forward with today’s and tomorrow’s
receipts, even as you integrate the older stuff. However, don’t
worry if you find you never look back; those older papers are safe
in their file, and you know right where to find them when you really
need them, like at tax time.