Why should producers track income and expenses?
Profit tracking is imperative to the success of a producer’s operation. Tracking the numbers can feel like a Herculean task but trying a few simple tips can go a long way towards improving the farm’s bottom line.
Take Notes: Profit tracking will require record keeping, so producers should be prepared to take notes.
There is no one-size-fits-all record keeping system. Every producer should experiment to find what meets their needs.
“For some people, a computer makes record keeping easier, for others, a computer just makes it more complicated. Nothing beats a good old-fashioned ledger book if you are accustomed to using it. Whichever system you are most comfortable with, make the best of it,” Wesley Tucker, field specialist in agricultural business, said.
Create a Balance Sheet: No one likes income taxes, but producers can use the data from doing taxes to their advantage, Tucker said.
“Everyone has to file their income taxes each year, but just because someone else made you do this very negative task, don’t let that stop you from using your records to find out how your business is truly doing,” he explained. “One simple step added to those tax records, can tell you a lot about your business. If you will take the time to do a beginning balance sheet each year, then an ending balance sheet, combining these with your Schedule F tax form can tell you a tremendous amount about how your farm business is performing.
“Simple calculations using different lines from each form (once again these can be computer spreadsheets or paper forms) will reveal many things about your profitability, liquidity, solvency, repayment capacity and financial efficiency.”
Use the Data: Once a producer has profit tracking data in hand, it is important to put it to good use. Make changes and improvements where necessary and build on what is already profitable.