Follow this link to see AgWeb's post about how to bulletproof your balance sheet.
The plain and simple truth is that if you don’t track financial information by crop, farm, field, and land owner, you are just guessing whether you are making the right decisions regarding your farm. On the flip side, when you are tracking it, you can also do “what if” scenarios that open the pathways to making better business decisions. “What if” scenarios can help you:
- Compare the profitability of individual production years regardless of crop/livestock.
- Determine which products to continue producing by comparing the profit per acre/head of each crop/livestock.
- Determine if fields/livestock are not producing to their potential.
- View the break even cost/bushel for each field in a production year.
- View the profitability of a field regardless of which crop it raised over a period of time or determine if it is more profitable to raise feeder hogs or farrow to finish.
- Analyze and compare profitability between profit centers, farms, and production years or any other combination of business segments.
If you track inventory, it will provide you with more accurate profitability analysis. If you aren’t tracking inventory, then you can’t really do accrual accounting, so you just expense your supplies (seed, fertilizer, etc.) in the year you purchase it. But that might not be the same year that you use it, AND it may not be the same year you sell the crop. So you could have the expense in one year and the revenue in another year… thus throwing off profitability for each year.
You can decide how detailed you want to be with tracking crop production…
- Start really basic – just do production tracking by crop, farm or field, or a combination of crops & farms or by land owner.
- Once you are comfortable with that, you could expand the next year (or whenever you feel comfortable doing so) and start tracking inventory.
- Then once you are comfortable with that – you can start using WIP (Work In Process) accounts and doing accrual accounting (and getting more informative and meaningful financial reports).