Farm bookkeeping isn’t exactly like bookkeeping for ordinary businesses. In the “non-ag” world, tracking transactions is fairly straightforward. But on the farm, things move at a different pace.
The physical aspects of running a successful farm are tough enough. Making sure you stay on top of your finances is a different kind of challenge…one that can make or break your business.
Here in West Tennessee, where our firm has 6 locations, we have a lot of farmers. And many of our clients are involved with some kind of agriculture operation. So, in this post, we’re sharing several of the farm bookkeeping strategies we use with our customers regularly.
Farm Bookkeeping
Let’s start by defining “farm bookkeeping.”
Farm bookkeeping is the process of maintaining the financial records of an agriculture-based business. It has to account for quite a few more variables than standard businesses do.
First, there’s the fact that the product of the business is alive. Whether it’s plants or livestock you’re dealing with, living things aren’t always completely predictable which can lead to unexpected issues and expenses.
Then there’s the weather. Farms don’t operate inside brick-and-mortar locations where the outside elements don’t impact business operations. By their very nature, farms are out in…well…nature. And nature has a reputation for being incredibly unpredictable.
Beyond that, the kinds of assets, liabilities, costs, and revenue streams associated with farming or ranching are very unique. Most businesses aren’t concerned with the value of multiple acres of land, fluctuating commodity rates, crop yield analysis, livestock production costs, or the depreciation of extremely expensive pieces of equipment.
All of that put together creates an environment for bookkeeping that can be quite challenging.
With that in mind, let’s take a look at several agricultural bookkeeping best practices we’ve seen over the years.
Agricultural Bookkeeping Best Practices
1. Keep Separate Accounts
Your personal bank accounts and your farm bank accounts should never be the same. Keep your money separate from your business money. That way there is no confusion when it comes to your farm bookkeeping as to how a transaction should be recorded. If you pay yourself out of your business profits and never dip into the farm money to pay for personal items, then every line of revenue or expense on your books will be much easier to manage.
2. Record Transactions When They Happen
We get it. No one enjoys sitting down to do bookkeeping. Logging transactions and balancing checkbooks isn’t exciting. As a farmer, you’d much rather be out doing something with your fields or herds that feels more productive.
But letting transactions pile up while you keep putting them off only makes it more difficult when you finally get around to them. By adding revenue and expenses to your books as they happen (or as soon as possible), the task becomes much smaller, more manageable, and takes a lot less time.
Set aside 10-15 minutes at the beginning or end of each workday to record any new transactions and review your accounts. You’ll knock it out quickly and feel so much better because you’re staying on top of things.
3. Use Accounting Software
To piggyback off the last point, using good accounting software will make your life much easier. There are a lot of good options available to help you keep everything in order all in one place.
Avoid having a frustrating stack of receipts and invoices by regularly entering all of your financial activity into your accounting software. And when it is time to generate reports or send information to your CPA, you’ll be able to do it easily.
The product review site Top10.com has a good list of the Best Bookkeeping Software of 2024 if you’re looking for a place to get started. You can also give us a call if you’d rather get recommendations from a real live person who completely understands what you’re going through.
4. Keep Your Receipts For Accurate Farm Expense Tracking
You need to be able to verify every single purchase you make for your farm. (At least for the next 3 years, according to the IRS.) That can quickly turn into a pretty big pile of paper.
Fortunately, the accounting software we just mentioned along with a good receipt scanner can make the job a lot easier. The trick, though, is to come up with a system that you…and everyone else who buys things on behalf of your farm…use every time.
Now, we’re naturally a little partial to Tennessee (we have 6 offices throughout the state – Jackson, Dyersburg, Paris, Brownsville, Martin, & Milan). However, the folks in Missouri know a thing or two about farming as well. The University of Missouri Extension has a helpful webpage dedicated to farm accounting where you’ll find several valuable resources.
Check out this post we did a few years ago for more: “Keep Up With Reciepts Like a Pro With These 3 Simple Tips.”
5. Know Where All Of Your Income Comes From
Many times, farmers only think of reporting the most obvious sources of revenue on their tax returns: sales of livestock or produce raised on their land. However, there are a lot of other ways that money comes into a farm. You need to be sure to accurately record all of them.
With better information, you can make better decisions.
Some revenue sources you might not automatically consider include:
- Payments for work you did for someone else
- Co-op distributions
- Ag program payments
- Tax credits or refunds
- Crop insurance payouts
- Federal funds
6. Know The Difference Between Farm & Rental Income
Not all farm revenue is recorded the same way. Income that you receive from activity you are directly involved in on land that you own is considered “farm income.” This revenue is recorded on Schedule F of your 1040. If you are a landowner who rents part of your property to someone else so they can create a farm product, that revenue is considered “rental income” and must be reported using Form 4835.
Revenue and Profit Analysis
Accurately tracking all of your revenue and expenses is just the beginning in making your farm flourish through good bookkeeping and accounting. The next step is to utilize revenue and profit analysis tools. After all, it doesn’t matter how much money your farm is bringing in if it isn’t making a solid profit at the end of the day.
Cost and profit analytics tools like the one created by Conservis can help you see exactly which of your fields are your best performers by breaking down all of the inputs you provide and showing you what your real costs per acre are.
And with better information, you can make better decisions.
Count On Farm Bookkeeping and Accounting Pros
Our firm has been on the front lines of agribusiness finances and record-keeping for farmers for over 40 years. We understand the importance of making sure every dollar works as hard as it possibly can when everything around you is so unpredictable.
When it comes to your farm’s bookkeeping, trust pros who have the experience you need. Schedule a call today with one of our agriculture accounting experts to learn more.
P.S. – Be sure to also check out this post we did on “Valuable Do’s And Don’ts of Agriculture Accounting That Can Save You Money.”
