We may be well past the time of year to make New Year’s resolutions, but it’s never too late to make goals for the year ahead, especially when it comes to improving your record keeping practices!
For those of you that are not fully utilizing accounting reports to guide your farming operation – I challenge you to make it one of your goals for your operation this year.
Up to date records allow you to:
• Manage your business operation effectively,
• Manage your tax liabilities effectively (and with less stress)
• Make family living budget decisions more easily
Accurate and up-to-date records also demonstrates your commitment to knowing your numbers and providing accurate historical results, which lenders and other capital providers appreciate because it allows them to produce lending decisions in a quick and seamless manner.
It’s no fun scrambling around at the end of the year catching up on your record keeping trying to find out what you need to buy for inputs or equipment to minimize tax liabilities. Keeping your accounting up to date throughout the year allows you more time to plan and shop for the best prices on any necessary purchases.
In addition to completing your accounting in a timely and routine manner throughout 2025, you should also complete a budget for the upcoming year. Now is a great time to take financial measure of how your farming operation ended the previous year and to also establish your goals for the new calendar year.
A detailed and realistic budget is one of the most important tools for guiding your farming operation and providing the information necessary to operate within your means, handle upcoming challenges, and hopefully record profitable results. Throughout the course of the year, you should continually refer to your farm's budget as a way of measuring performance against expectations.
How can you know what’s possible financially in the future if you don’t understand the historical results you’ve posted? The first step in the budgeting process is to make sure you know where your money has gone historically. Know your historical results!
A budget is a planning tool necessary for building a framework for your farming operation and its finances. A budget combines past trends with realistic forecasts for the upcoming year and provides a detailed view of realistic revenue expectations and how those stack up against your anticipated expenses.
Budgets also help with setting goals and establishing priorities. Like any business, farmers should, at a minimum, look at their total farm operation each year and establish goals for the upcoming year based upon their preliminary assessment of what could happen.
Goals should also be established for the upcoming year. Review expenses line by line, including the reasons and rationale behind any expected change in your cost structure. Will expense line items increase by cost-of-living adjustments or much more due to inflation? Are you going to outsource less custom hire work? Do your rent agreements have escalations in the current year? Does ground that you have rented each year no longer make sense given where commodity prices are at today and projected through the rest of the year?
Occasionally, farms will complete their budgets with multiple scenarios – worst-case, most likely, and best-case models are all frequently used. This helps farmers to mentally prepare for contingencies and identifying potential changes from initial expectations.
For example, assume a budget accounts for $4.15 corn and $10.00 soybeans. What if, in the middle of the year, soybean prices have dropped drastically, and you now expect that your sales price per bushel will be $9.00?
How would that affect your operation’s break-even price for your expected corn production?
You now need to sell your corn for $4.77 to break even. Is that possible — if so, do you sell it all when you see that price available? A portion of it? If not possible - where are you at to budget on other financial statement line items? Do you need to cut expenses elsewhere? Tighten the family living belt?
You are only able to answer these questions and make educated decisions if you understand your numbers and are up to date on your record keeping — tracking actual revenue and expenses and comparing them to what was budgeted. This helps to ensure that your farm is sticking to its plans. Budgeting also offers an important means of identifying problems and opportunities.
If you are interested in learning more about anything you read within this article, contact your CPA or a local GreenStone branch. GreenStone offers a full array of tax, accounting, and payroll services for farmers and agribusinesses.
This article was originally published in Michigan Farm News.
