As a beginning farmer with no accounting experience, how can I get on the path of good financial management?
Answer: In addition to growing great food and fiber products and taking care of the land, farmers need to be good financial stewards of their business and household. This requires being organized, keeping track of all income and expenses, and having a grasp of basic principles of accounting.For instance, if you can predict the months when your major expenses will occur, you’ll be better able to ensure that you have the cash on hand to pay for them. This is especially important for farmers, who tend to have high costs in the spring and don’t necessarily get paid until later in the year. You can better manage your cash by creating an annual cash-flow budget. Or if you’ve spent a few years building your farm business without paying yourself for your labor, you may be wondering just what you have to show (financially) for all those hours of “sweat equity.” You can answer that question by looking at a few years of annual balance sheets for your farm placed side by side. Finally, if you have a goal for how much household income you’d like to draw from your farm operation, you need a clear picture ? in the form of an income statement ? of your farm’s annual expenses in relation to annual sales. This can help you determine how much more you need to sell, increase your prices, and/or reduce your expenses in order to make your desired amount of take-home pay.Furthermore, if you are comfortable answering these questions about your financial situation for yourself, you will be able to answer the same questions for a lender. The bank will want to know that you have a realistic understanding of your financial situation, of where you’re headed, and of what it will take to pay back your expenses, including the loan, in a timely manner. While good financial management won’t make your business succeed on its own, it will help you avoid unnecessary costs, expand your business predictably, and ensure a financial cushion against unexpected events.I recommend that you consult the ATTRA publication Basic Accounting: Guidance for Beginning Farmers. This publication makes basic accounting approachable for people with little or no accounting experience and encourages new farmers to develop good recordkeeping habits at the outset. It provides several sample templates and worksheets, along with a list of further resources for additional study.