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Farm Costs: Track Pieces, Build the Big Picture

Finance First

Knowing where your expenses are going is more than half the battle

Published on: September 30, 2013

Last week, I talked about some ideas younger farmers can use to plan for financial success. Here are a couple more ideas that farmers of any age may find helpful as they build good financial management practices into their operations.

First, how are you tracking your farm expenses? Related to that, how are you tracking your family living expenses? If your farm is incorporated, you should already be keeping these accounts separated – since that's the law for an incorporated business.

If your farm isn't incorporated, it can be tempting to keep everything in one pot since you aren't required to separate it out. That might make things easier in the short term for cash flow reasons, but in the long run it's much more helpful to you to keep it separated. Knowing exactly how much you are spending in different categories is essential to making good financial management decisions on the farm.

Next, take time to create expense categories that make sense for your operation. Then you can track and see if you overspend in any particular area. You can easily see the areas where you're already doing a great job of managing costs.

When your costs increase because fuel or seed prices jumped, then your numbers will reflect that. If something else causes an increase, you'll be able to identify precisely what happened. Sometimes the numbers can be pretty revealing.

Finally, it's about having the right financial tools at your disposal in order to evaluate how you're spending money in your operation. Seeing what you need to do to create positive changes can be very powerful – and motivating.

What happened?

Otherwise, it's hard to figure out what happened. You might feel like shrugging your shoulders and saying something like this. 'Well, fuel prices were out of hand this year,' or 'seed was just really expensive.' It may be easier to create scapegoats when it's not clear why expenses were higher.

Using budgets allows you to compare your plans with the actual costs. You figure out where your money is going – and you have the opportunity to make different management decisions based on the numbers.

Tracking your expenses carefully is helpful as you guide your operation toward success. Ag economist and speaker Dr. David Kohl recommends this to farmers as a tool that can help when you're working to manage your expenses. At our Ag Edge Farm Business Seminars this winter, Dr. Kohl will be talking with farmers about what's coming next economically in ag – and how you can best prepare for it.

Find a seminar near you, check out the agenda and plan to attend. You'll gain valuable insights to take back to your farm from Dr. Kohl and other speakers on a variety of farm business topics.