Good Records are Key

If you think you just need to keep your records for tax purposes, you could be missing profit opportunities. If you are not keeping detailed records, there are plenty of resources to help you get started including your Farm Credit account executive.

Whenever the topic of records comes to mind, everyone immediately thinks of financial records or the records needed to prepare tax returns. While certainly important, they are not the only records needed for a farm operator to assure himself of maximum profits. What records are needed? Obviously, it starts with financial records, and includes production records, capital asset records, environmental and health records and personnel records.

Financial Records. The most basic of all records are those needed to prepare a business’ annual income tax return. For far too many businesses, this is both the beginning and end of records. Big mistake! Financial records should go far beyond what is needed for the preparation of taxes. For example, tax returns require only the dollar amount of sale, while good financial records will record individual sales, the detail of the sales and organize it all in a way that makes possible management reports based on those records possible. While the sale matters, so does pricing, promptness of payment and shrinkage.

Production Records. Good production records go far beyond corn yields or milk per cow. The best of them integrate the farm’s financial records to allow the operator to closely follow the true profits of a given enterprise. A dairy cow is a great example of this. Suppose the farmer has two cows, one produces 20,000 pounds of milk per year and the other 28,000 pounds. If this is the extent of records, the more valuable cow would seem to be obvious. But consider that the 20,000-pound cow calves every 12 months, while the 28,000-pound cow calves every 18 months. In a three-year period, the 20,000-pound cow produces 60,000 pounds of milk and three calves, while the 28,000-pound cow produces 56,000 pounds of milk and two calves. Without the records, you wouldn’t know which cow is more profitable.

Capital Asset Records. When did you buy that piece of equipment and for how much? These are important considerations, now that it is not uncommon for single pieces of equipment to cost over $250,000. Further, what does it cost to operate the piece? Good capital asset records will be well organized and work hand-in-hand with the depreciation schedule of the business.

Environmental and Health Records. Environmental and health records have been increasing in importance for quite a while and this trend will continue. What did you do with your manure? What spray did you use, where was it applied and by whom? What was given to your animals, when and by whom? An error here could cost you the farm!

Personnel Records. Employee’s pay records are critically important: if everything is not done correctly and records are not properly kept, the farmer will experience much distress. Simple things, like a file for each employee that is maintained for years after the employee departs, must be standard procedure. This file must contain authorizations for any withholdings, as well as personal information such as address, marital status and social security number. Also important are job applications, evaluations and time-off records; to say nothing of time cards and pay rates. It wasn’t that long ago that a farmer could be profitable and secure if he properly tilled the soil, planted and harvested on time. While still true today, it is now also important that records of many types be topnotch. It is for this reason MSC Business Services offers accountants that specialize in ag accounting, lease software specifically designed for farmers, offers a Payroll Service for farmers and can perform consultations in all areas of concern to today’s farmer.

Article complements of Mike Evanish, MSC Business Services