Farm financial records have several purposes on dairy farms, so the first step is to decide what information you need and will use. Records may be used for income taxes, to acquire loans, to assess the financial status and performance of the farm, and to aid in decision making.
Most farmers file income taxes on a cash basis so a simple accounting system can handle this requirement. However, tax records provide an incomplete and possibly misleading picture of a farm’s financial situation and little detail for use in decision making and management. Financial performance and health are best measured by three different financial statements, prepared annually. These are an income statement, a balance sheet or net worth statement, and a cash flow summary. Inventories and other accrual adjustments are important to truly understand what is happening to income and expenses on a dairy farm. Balance sheets should be prepared for the first day of each fiscal year, usually January 1, and include farm assets valued at both market and cost basis for comparison to other farms and across time. Many managers go beyond this and use their records to calculate financial and farm performance measures.
A few key attributes of good record-keeping systems are:
• Detail desired by management to:
– track business performance
– provide information to be utilized for decision making
Once a farm manager decides what information he or she needs, an appropriate record-keeping system can be created or purchased. Handwritten records may suffice on a small farm, but many farmers use a computer-based system because information can be summarized fairly easily in different ways and for different purposes. Larger farms find the payroll features of computerized systems invaluable. Ease of use, cost, and the availability of local support are factors to consider when buying record-keeping software.