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What resources can help me in my farm finances?
Knowing where you’ve come from in your farm business can help you know where to go. Keeping good, clear financial records is key to your future farm business success. Applying those well-kept records using helpful financial planning tools can ensure that you make sound financial decisions going forward, and avoid pitfalls from the past.
Marbleseed has published the book Fearless Farm Finances, a one-of-a-kind resource packed with instructions, tips and tools for setting up and managing a farm’s financial system. While I recommend reading the whole book, here are a few tips that really capture how to use your records to move forward with your farm business.
Chapter 19 offers an invaluable tool for your financial planning: an annual cash flow projection, also referred to as a “pro forma” cash flow. Using a cash flow projection tool, you can plot out on a month-by-month basis when cash income will be received and when cash expenses will need to be paid. You will also be able to predict which months your cash flow will not meet your needs and how to plan ahead to cover those cash shortfalls.
You’ll start with the good financial records from the last year of any enterprise in your farm business, and include pay stubs from off-farm employment, tax returns, and bank records to help build your cash flow projection. You can create your own cash flow projection using Excel spreadsheets, available templates from universities and financial institutions, or the budgeting function on your bookkeeping software.
You can even create a simple cash flow projection in a notebook.
Using the financial records outlined above, you can then create your income and expense categories and fill them in. This can be as simple or as complicated as your farm operation, or as you choose. From there you’ll create your cash flow projection for each month. Farming has many variables, and farmers understand the need to be flexible and creative.
You can keep track of the variables in your cash flow projection and resulting budget through good monitoring, outlined in chapter 20. Monitoring is regular assessment of where you are headed so you know if, on that trajectory, you can expect to achieve the goals you’ve set. While assessing, you can decide if you’re on or off track, and if your circumstances have changed, and finally what you need to do to accommodate the changes.
The Fearless Farm Finances book recommends: “Ideally, every month you will compare your actual cash flow to your plan (your budgeted cash flow) to assess your financial status relative to your annual goals. This requires a budget that lays out expectations for monthly progress. It also requires that you regularly enter data in your bookkeeping system. Recognizing the value of, and having a commitment to periodically assessing your performance relative to your plan provides an incentive to keep up with the weekly work of financial data entry.
Monitoring progress should lead directly to actions that control negative deviations and adjust for positive developments, and a recognition of when things are working right.
Regular monitoring can help guide your decisions as you continue through the farm season. While it can be challenging to keep up with bookkeeping in the heart of the busy farm season, it is time you can’t afford not to set aside. Knowing where you’re at with cash flow in August can save you from difficulties in October, not to mention the end of the year.
Invest in your financial future with more knowledge and tools to guide your farm business planning. Fearless Farm Finances is a great place to start. The book will is available for purchase on our website.
Posted: Jan 2017
Answer By: Jennifer Nelson