Accurate and updated record keeping is vital for producers across Ontario.
It allows producers to track data to make informed and timely decisions, and reduces environmental and legal risks.
According to a 2015 report conducted by Agri-Food Management Institute, record-keeping was considered very important by profitable producers, said Erich Weber, business finance specialist with OMAFRA at the 2020 FarmSmart conference held in Guelph Jan. 18.
Why it matters: Good farm financial data can help farmers make more informed business decisions.
Weber says accurate records allow farmers to answer three simple questions. Are you profitable? Are you able to supply living expenses? Do you know if your cost of production (COP) is too high for the current market prices?
“Look at crop prices. They vary so much that you need to know where your cost of production is so that you can make sure you can be profitable.”
Financial and production records will be used for either your own analysis or for government or commodity organizations.
Other records which are important include wills, Powers of Attorney, medical directives, list of beneficiaries and lists of bank accounts, passwords, etc.
Whether to have online or physical records depends on the producer’s preference.
As well, some records are more suited for physical records, while others are better for digital.
“The bigger aspect of having physical record-keeping is it does make it a little more difficult to have any sort of analysis to make more timely decisions.”
As well, electronic allows for more flexibility.
If purchasing online record-keeping programs, there are a few questions which are important to ask, says Weber.
Where is the data stored? Who can have access to the data? What reports can the program generate? How is information uploaded into the program? Is the program compatible with smartphone technology?
Farmers need to ensure they are selecting record-keeping systems that work for themselves and their operation.
Evaluating the system consistently can ensure the style and program selected continues to work and meet the producers needs.
Records are important for a farm business to be able to analyze profit with their revenue and costs.
It can lead to producers being more profitable as they can make more accurate decisions.
“People like to focus on revenue because it’s easy,” says Travis Jansen with Advanced AG Consulting.
“If the farmer is growing 250 bushel corn and selling it at six dollars per bushel it’s great. But if you don’t know your cost of production, and it’s $1500 per acre, your profit is not useful.”
Jansen works with his family on their hog farm in Seaforth, Ontario and put together bookkeeping for his family’s operation.
Jansen uses Excel for his work, a program he was previously familiar with.
Jansen outlined six steps he followed to begin the project.
Create a structure and understand it
“A really good (structure) for figuring out your cost of production is your income statement, it can be structured in many different ways,” says Jansen.
The key components of an income statement include revenue, cost of goods sold, operating expenses, operating overhead, cost of capital and interest. All of which help to analyze the cost of production.
Ensure the data is good data
It’s important to have good data and make sure business and personal transactions are not together and can be easily deciphered.
“It’s not useful to figure out your COP if you have personal and business mixed in together.”
Input the data
Jansen began to input his farm’s data by downloading his bank statements onto Excel and inputting transactions within the proper income statement columns.
Providing detail to the data
“The detail is a bit more for you and not likely what you’ll see on the income statement,” says Jansen.
Analyze the data
Jansen says they review their financials monthly and it takes about half a day. That works out to six days a year and on a 40-hour week, that’s only 2.4 per cent of their time.
“I find it’s really worth it, it provides really good information that helps to guide decision making and changes on the farm,” says Jansen.
Reflect on your process and refine
This is an opportunity for individuals to review their bookkeeping programs and operations to ensure everything is working as they would like.
Jansen stresses that when trying something new it’s important to recognize that it won’t be perfect the first time.
“Develop a structure with everyone so that everyone is more patient when thing’s don’t go perfect the first time around.”