Good Records: The Foundation of a Strong Business

Entrepreneurs & Their Communities September 08, 2015 Print Friendly and PDF
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Few farmers really enjoy record-keeping but it is a critical component of good business management. If your current record-keeping system is not quite meeting your needs winter is a great time to get a system in place that will really work for you in the coming year.

There are two distinct types of records—financial and production. Financial records relate primarily to the income and expense transactions of the farm. Product sales, operating expenses, equipment purchases, accounts payable, accounts receivable, inventories, depreciation records, loan balances and price information are all examples of financial records.

Production records are items that  relate to quantities of inputs and levels of production by enterprise and/or by resource type. They consist of crop yields, planting schedules, calves born, pounds of milk produced, weaning weights, death loss, breeding, etc.  

Both production and financial records are important to the efficient management of today’s farm business and used together they provide a valuable picture of a farm’s viability. There are two key reasons why you need an effective record-keeping system. The first one that usually comes to mind is compliance. If you are a business owner then you will need to supply information regarding your business to a number of agencies including your lenders, the Internal Revenue Service, and your state and municipal tax departments. You will also need good business records if you are considering purchasing crop insurance or other risk management products subsidized by the federal government. Finally, in the event of a disaster you will be required to present past records in order to participate in many state or federal emergency programs.

The second, and probably most important, reason for having a good record-keeping system is to have the data you need to make sound decisions regarding your business. Having accurate, up-to-date records is one of the best tools you can have when choosing where to focus your management effort for the future. Will you add new products? Diversify your farm? Raise your prices? Seek out more customers? Expand your business? Try a new marketing strategy? Any of these are fair questions to ask but if you don’t have good records it will be tough to find answers. Selecting a record-keeping system should depend on how the records will be used, who will be the record-keeper, and how many individuals will need access to the data. There is no “best” record-keeping system for all situations but any farm records system should:

  • provide accurate and necessary information
  • be user-friendly
  • be flexible enough to provide information in a variety of ways

A common question is whether a computer system is “better” than a paper ledger. While a computer-based record-keeping system might make the job easier, the question is really what system works best for your management team? If you don’t like computers then investing in one just for record-keeping is probably not a good investment. Either way, it is not where you keep track of your records that matters –it is the fact that you make a commitment to keep your records up-to-date and accurate.

If you are interested in improving your record-keeping skills there are a number of workshops, factsheets and guides that can help you. Consult a farm business specialist in your area for advice on where to start.

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    This work is supported by the USDA National Institute of Food and Agriculture, New Technologies for Ag Extension project.