March 10, 2017
My 31-year-old daughter, who farms with me, is fired up about making some management changes she heard about at a few winter meetings. She keeps talking about accrual accounting, benchmarking and standard operating procedures. My banker doesn’t seem to need this stuff. Sounds like a lot of happy talk from a bunch of academics who have never stepped foot on a farm. Why should we bother? — O.P., Iowa
Even if the millennials will be the death of us all, we will not survive without their input! This Catch-22 plays out on our farm also.
For clarification, accrual accounting, benchmarking and SOPs are management tools for your operation’s improvement — not your banker’s.
For example, we all have to maintain annual cash flows, but it is critical to separate the cash flow associated with each crop each year, so you can know if you made any profit on 2015 corn vs. 2016 corn vs. 2016 beans. This can get confusing in the middle of the summer when you are dumping bins of 2015 corn, spraying the 2016 corn and buying the first inputs for 2017 corn.
Accrual accounting is a way to validate enterprise profitability. Historical accrual accounting is your best information to decide whether you should be planting more soybeans in 2017.
Benchmarking compares your operation to others similar in type and size on a number of productivity or financial markers, and then keeps a history of how your efficiency or financial standards are changing over time. Comparing your corn or bean budget to the land-grant university’s budget is a good place to start.
SOPs get your experience down on paper, which can be helpful to the next generation. From listing the specs governing your planting decision process to recording the steps for buying crop inputs, written communication is essential.
Try to not inhibit your daughter’s enthusiasm. If you already do accrual adjustments by hand, but she wants Quick Books to do it automatically, let her. She’s been at it a lot shorter than you and her ideas might just be the path to the deeper immersion you need her to have.
Jerry and Jason Moss operate Moss Family Farms Inc. Email your questions to [email protected]. All questions will be printed or published online as anonymous
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