If you’re in the farming business you’re probably familiar with the concept of farm income. Farm income is the cash you receive from selling the products you produce on your land. It does not include the money you may make in selling cattle or other livestock. You can track your farming income in several different ways, from printed farm receipts to the newest crop of mobile apps. Keeping a record of your farming income is one of the best ways to plan for your future.
One of the most effective strategies is to keep separate personal and business finances. This can help you offset the dreaded net farm income drop. Another tip is to use the cash you earn as a hedge against unexpected expenses. A hay bale for example is a cost of production that should be included in your budget.
Keeping track of your farm income is no easy feat. For many, the challenge is to keep track of a variety of transactions, from purchases and sales to payments to vendors. Whether you do it manually or via a computerized solution, keeping tabs on your farm’s bottom line can be a time-consuming chore. But it’s essential to know how much you’re spending and what you’re earning. The more informed you are the better equipped you will be to make smart financial decisions.
In order to track the right things you need to understand the difference between variable and fixed costs. Variable costs are those that can be directly attributed to the production of your product, while fixed costs are those that are not. Fixed and recurring expenses such as utilities and insurance are the costs you can count on regardless of what you’re growing.
The old fashioned method of jotting down all of your receipts into a notebook works just as well, if not better. You can also enlist the help of software, like Quick Books or Fresh Books, to keep your financial records in order. Using the correct accounting software is essential to keep your business on a track. However, many farmers do not create any type of financial plan. Creating a budget, however, is the only way to ensure that you’ll come out on top when the time comes to pay taxes. Taking the time to devise a plan can be an empowering experience. Having a good farm budget will give you the peace of mind to focus on what you do best. So if you’re considering a move into the ag business, consider the benefits that come with a successful venture. Take it slow and steady, and your farm could be a great success.
Using an app, like Expensify or Fresh Books, to track your farm’s finances is a smart idea. The app will scan and link all of your receipts into a single database, and the service is a mere $5 a month.