Keeping Good Farm Records Pt 1

A dairy farmer notices his herd’s milk production has decreased. Rather than guess at reasons why, he turns to his records. 

He finds that on a particular date he switched to a different, lower quality feed source. When he resumes feeding the better quality product, the milk production problem is solved.

Another farmer sits down at his loan officer’s desk, seeking a loan to purchase a large tract of land. The farmer knows that before the lender can make a decision, he will want to know that the farmer can pay back the loan. The last time the farmer was in the office he didn’t have his farm records together. As a result he and the loan officer spent extra time going back and forth as he pulled together what he needed.  This time he comes prepared with a balance sheet, a profit and loss statement, and tax returns.  The loan officer is able to quickly assess the overall well-being of his farm operation.

These scenarios point toward two different types of record-keeping and both are equally important. The first underscores the importance of production records, which consists of inputs and production levels, depending on the enterprise. It might include crop yields, calves born, or milk produced, for example.

The second scenario deals with the overall business activity of an operation such as expected sales, expenses, and depreciation.

Record-keeping Leads to Better Decisions

“Strong record-keeping is indicative of strong management,” says Ben Cabaniss, commercial-ag loan officer in the Lincolnton branch of Carolina Farm Credit. “It serves more than one purpose. You may not know that you are losing money in one particular area of your business. It allows you, your lender and your CPA to find the leak and address it. It also helps you find areas for opportunities. You may find that you have the resources to diversify your operation, for example.”

From a lender’s perspective, solid farm records are vital to an accurate lending decision. “They allow the lender to give you the best possible financing terms based on your financial and farm management ability. They also keep you from borrowing more than you can actually afford.”

With the many hats farmers wear, they face many decisions as part of their farm operations. Record-keeping helps take the guesswork out of the equation.

“Strong records help make the decision-making process easier,” adds Cabaniss. “If you have a big decision for your business, the stronger your cost and income records the easier it is to quickly determine what impact a particular decision will have on your bottom line. Good records allow faster access to capital. If you are in the middle of a calendar year and there have been several months since you filed taxes, good records will help your lender make a quicker credit decision.”