Financial Record-Keeping, A Rancher’s Favorite Chore
Mentioning that records are a waste of time can usually start an argument, or at least get someone questioning all the hours they have spent keeping detailed records over the years. Honestly though, most records are a waste of time unless they follow Dave’s rules. It is easy to pick on the little red calving book that collects dust on the shelf, and checking the rain gauge for good coffee shop gossip; because that’s usually about as far as those records go in the business. Keeping records is worth it if a business owner or manager uses them in the future to make timely, informed decisions
Over the past seven years with Kansas Farm Management Association and this past year with John Haskell and Walter Lynn, I have spent most of my time helping farm and ranch families complete and understand their financial records. The financial records I am thinking of involve three specific tasks: day-to-day cash data entry, the bank balance sheet, and income tax returns. Now let’s be honest, working on “the books” is at the bottom of most rancher’s fun lists. Usually it is done at the last minute when the banker/ accountant calls or during some rainy day when they can’t go outside. This does not change the fact that maintaining up to date financial records are extremely important to every ag business. Here are my top 5 recommendations when it comes to keeping records.
1. Feed Your Finances – Data entry is WITB (Working In the Business), and the financial planning and future decisions are WOTB (Working On the Business). However, doing data entry is just as important as feeding and watering the cows. It needs to be completed and monitored weekly if not daily, depending on the season.
2. KISS (Keep it Simple Stupid) – Only track what is significant to the business, so your chart of accounts doesn’t become too long and cluttered. An easy example is creating one expense line for “repairs” instead of “pickup repairs” and “tractor repairs”; lump it together until we know it’s a possible deadwood in the business. The Income Statement and Balance Sheet should print on one page. Yes, your whole financial year can be boiled down to an 8 ½ x 11 page! Even a five-year trend report should fit on one page. For projecting cash flows, a 10% range of gross product and costs and rounding off to $1,000 increments are perfectly acceptable; the planning is more important than the plan.
3. Managerial vs Tax Records – Or cash versus accrual accounting. Or accounting definitions versus Ranching for Profit terms. These can all be very different. The RFP Economic Model looks at Gross Margins and Overheads and includes cash and non-cash adjustments to determine profit. Since we are concerned with profit, get familiar with managerial accounting, because that is what we need to make real time decisions. A lot can be done with QuickBooks and Excel, which are affordable and user-friendly software.
4. Find a Good Team – Educate your bankers and tax preparers on what your end goal is, so they understand your thought process with your records and reports. Those managerial records mentioned above might give your tax preparer a heart attack when they go to work on your cash basis tax return. The bank and the tax firm will need different records and inventories from you to complete their job; it’s also helpful if they know each other and you allow them to share information back and forth. Please give them grace, we are all professionals who have busy lives and different deadlines to meet.
5. Enjoy It – The best ranch managers end up truly having fun working through financial records. When the ranch is profitable and cash flowing, with enjoyable outdoor work, what else can you ask for? Find something you love, and you won’t work a day in your life!
I am not saying don’t fill out the little red calving book, or don’t check the rain gauge for drought planning, or that you need perfect financial records reconciled to the penny. I am saying to challenge your time spent with data collection and entry, versus the time spent analyzing and making decisions from those records. Ask yourself how much value do your records provide back to the business? For RFP alumni, I recommend you check out our upcoming Economic Intensive December 13-14 in Denver, CO. If you haven’t yet attended a Ranching for Profit School, be sure to check out our winter schools; they are filling up. When will you start Ranching for Profit?