As we celebrate the end of 2011 and the beginning of a new year, we are fast approaching the time of year that most of us dread … tax time. While many of us are waiting patiently for the W-2 form to arrive, farmers don't have it so easy.
Because many farms are single proprietorships or family partnerships, they are essentially self employed and have no one but themselves to keep track of income and expenses. Besides that, many farmers also must do payroll and withholding for employees.
Like any business, an important part of farming is record keeping, data collection, organization and financial planning. That does not mean stuffing every expense receipt, check stub and bill from last year into a shoe box with faded notes and well-weathered deposit slips.
Organizing your paperwork can be as simple as a cardboard banker's box and a set of alphabetized hanging file folders.
Good record keeping is essential to determining whether your farm business is successful or not. And not just at the end of the year. A good system will allow you to keep track of how your business is doing at a glance.
One of the first steps one should take is to use a farm business account book to track expenses and receipts. A step up from there would be to utilize small business management software to computerize and modernize your farm record keeping. Some programs have farm and ranch business accounts already set up and ready to go.
With computer business management software, important information such as profit and loss statements and cash flow projections can be accessed at any time of the year, not just at tax time. Some programs will also do payroll tax calculations and withholding.
Tracking income is a challenge no matter what kind of farming enterprise you have. Dairy farmers have a major source of income from milk sales but also have income from livestock sales, feed sales, government payments and income from rents or custom field work.