Understanding how much money is coming in and going out — and where it is going to or coming from — is an important record keeping practice on your farm. A cash flow statement can help you analyze your costs of production and potential for improved profits.
1 Capital purchases and sales
Capital purchases are items you purchase to improve your long-term assets. These items can include: breeding livestock, machinery and equipment, titled vehicles for farm use, land and buildings. Capital sales would be any sales of these long-term assets. Keep track of sales and purchases on a yearly basis.
2 Income
Market livestock, crops and product sales reflect your business’ immediate sales for the year. Keep a record of what is sold, the quantity and gross income from each item. Other farm income to keep track of: custom work, government and insurance payments, property insurance, cash from hedging accounts and miscellaneous livestock income.
3 Expenses
Seed, fertilizer, insurance, storage, hauling and trucking, marketing, livestock feed, veterinary expenses, livestock supplies and bedding, custom work and hire (foot trimmers, grain haulers, custom raising).
Operating expenses to consider: loan interest, fuel and oil, repairs (machinery, buildings, fences, etc.), hired labor and payroll, land and building rent, machinery leases, utilities and taxes. Having a better understanding of where your money is going can help you cut unnecessary costs.
4Other income and expenses
Know your family living expenses and owner draw from the business — what do you need to live off of if the farm is your main source of income? Record any gifts or inheritances or cash gifts given.
5 Inventory
Another key to managing expenses is knowing what you have. Keep records of breeding stock, feed and seed supplies and grain stored to determine what you have on hand and what you need.
Source: Ohio Farm Business Analysis and Benchmarking Program, Ohio State University
(Farm and Dairy is featuring a series of “101” columns throughout the year to help young and beginning farmers master farm living. From finances to management to machinery repair and animal care, farmers do it all.)
More Farming 101 columns:
- 5 things young farmers should know about finances
- The farm balance sheet
- Personal and business records: Keep them separate
- What to include in your farm business plan
- How to approach a lender: Tips for getting a farm loan
- How to use microloans to get your farm started
- Saving for the future: 6 tips for young farmers
- How to create a farm safety kit
- 5 tips for child safety on the farm
- 6 tips for livestock safety
- 4 tips for transporting livestock
- 5 ways to better understand tractor stability
- 6 farm equipment hacks
