Time to focus on the books
Most farm families are totally focused on their harvest progress this time of the year, and on getting fieldwork done before the ground freezes. Spending time inside working on the books can be a challenge, but as the daylight hours start to shri...
Most farm families are totally focused on their harvest progress this time of the year, and on getting fieldwork done before the ground freezes. Spending time inside working on the books can be a challenge, but as the daylight hours start to shrink, I find it a little easier to set aside some extra time for crunching numbers.
Tracking farm income and expenses on a monthly basis has become even more important as farm operations typically deal with a large volume of dollars. According to the database of farms enrolled in our program, the average operation handled close to $2 million in 2013, which is almost double the volume in 2007. Few farms have a full-time bookkeeper, but the bills do get paid and books get "squared-up" regularly. We, as instructors, work closely with our farmers to improve their recordkeeping system and develop comprehensive financial management for their operations.
In addition to focusing on farm income, expenses and capital purchases, we also stress the importance of monitoring family withdrawals or living expenses taken from farm operations. Much like the trend in overall volume of farm income and expense, family living costs have almost doubled since 2007. Back then, the average farm family spent $48,000, but that amount had grown to $87,000 in 2013. Health care and food/groceries accounted for 35 percent of family expenses in 2007, and represented the same percentage in 2013. Many producers experienced a rather large reduction in farm income in 2013, and it is quite possible that 2014 will not be much better. In fact, it could be worse for those operations that are not diversified with livestock, given the rather dramatic drop in grain prices since early summer.
Farm families have proven they are adept at adjusting to fluctuating incomes. But just a 10 percent reduction in living costs from 2013 would be $8,700 or $725 per month. That number might prove to be difficult, as certain expenses such as health care and life insurance are tough to scale back. For those families who have off-farm income, the adjustment might be less painful, but it is important to realize that when farm profits diminish, so must other expenses. If your family has not adopted a personal budget, now would be an excellent time to implement one.
For those families enrolled in our program, it will be important to scrutinize which spending categories need to be trimmed. In either case, it will take discipline to stick with a tighter budget during this downturn in farm profitability.
If you are interested in learning more about the services we provide at South Dakota Center for Farm/Ranch Management, please call 605-299-6760 or email Kathy.Meland@mitchelltech.edu .
Editor's note: Meland is an instructor at the Mitchell (S.D.) Technical Institute.