I Wish I Had Kept Better Records

VCE Agricultural and Applied Economics: Management and Production Economics February1996

by Frank E. Smith

How many times have you said, " I sure wish I had kept better records"? Most of the time, it is when you are sitting across from your tax accountant or your banker. Farm Records are usually the chore that is left undone and is, in many cases, the most needed task to be completed. The primary reason for keeping farm records is to provide financial and physical information about the farm business. Such records can supply information helpful in decision-making. Unfortunately, many farmers keep farm records solely for the purpose of filing federal and state income tax returns. But the problem is, many erroneous management decisions can be made from a set of "tax" records.

A set of records designed to provide the details for management decisions will also provide the necessary data for filing tax returns, i.e., the decision concerning the method of paying the tax and the amount of tax paid.

An adequate farm record system should be easy to keep and give the necessary information when it is needed. At times these characteristics may be in conflict, i.e. records that are easiest to keep may be inadequate in terms of providing information necessary to make decisions. Therefore, the manager should continue to spend time on his/her records until it is profitable to spend the time elsewhere. It is possible to record information that has less benefit than would be received if the time had been spent in another way.

As farms become larger and more details become necessary for good management decisions, the question arises as to who should keep the records and how the records should be kept. The manager must be able to interpret and analyze his/her records properly if the best management decisions are to be made, but this does not mean that the actual posting of entries be made by the manager. In many cases other members of the family or other part-time hired labor can be utilized. It makes no difference of how the records are kept whether by computer, accountant, or pencil-pushing record book as long as they are kept. The larger the operation, the more computers and other time-saving methods will probably be utilized.

What can farm records do?

1. Records are, by definition, a matter of past history; they cannot predict the future. They can furnish valuable information about past performance in specific areas of the farming operation which can be used in conjunction with other data in determining future operations, keeping in mind the elements of risk and uncertainty.

2. Records of physical inputs and outputs such as those entered on crop and livestock records are especially valuable. If such records are kept for an adequate period of time, they provide a basis for estimating the yields that might be expected on a particular field or the rate of gain from steers fed in a particular way.

3. Financial records are essential for tax purposes and in fiscal dealings such as bank loans, estate planning, etc. They provide information about the asset, liability, and "equity" position of the farm business that cannot be provided in any other way.

Some of the most productive work the farm manager can do in the operation of the farm business is in the analysis of the completed record. Farm records are of little value unless they are analyzed, interpreted, and used in decision-making. Care must be taken in interpreting the results of the analysis and the manager must realize that the analysis is not an end in itself, but merely a means to an end--a more profitable operation. Complete analysis should point out "strong" and "weak" points in the organization and operation of the business.

Virginia Cooperative Extension can help with choosing a "workable" recordkeeping system and analysis of your farm records.

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