Today’s farmer recognizes the value of implementing advanced technology to minimize labor and maximize profits. But this implementation is often narrow in focus, with many farmers making major investments in agricultural equipment but neglecting to make similar investments in other areas of their operation that could save them time and money – such as agriculture accounting software.
All farms and ranches conduct some form of accounting (at least all those compliant with the IRS), but many do not utilize contemporary accounting methods or software to help make this an efficient part of their farming business. According to a Federal Reserve Bank report, in the 50-year period starting from 1948, agricultural productivity increased by more than 80 percent. This impressive growth required optimal land usage and smart crop management.
According to the report, “Today, productivity increases center on rising yield per acre and per animal.” In the same way that innovations in equipment technology have helped farmers improve productivity in the field, it’s critical that they harness technology to gain better efficiency in the office too.
Investing in Technology But Not Software
Farms are now cutting-edge mechanized outfits, regularly using tools like tractor-mounted GPS devices and multi-spectral imagery. Farmers often invest hundreds of thousands of dollars squeezing every drop of profit out of a field with the latest technology. This is why agriculture machinery company John Deere is on the Fortune 100 list.
However this implementation of technology is narrow, and it often comes at the expense of management and accounting software. In a conversation with Texas Agrilife Extension Economist DeDe Jones, she explained that many farmers she works often fail to see the benefit in using technology to track business metrics – until they see the results. “Many producers are so surprised when I show them that their wheat crop doesn’t cash flow,” she said, “or that a particular farm is underperforming.”
Jones’ colleague and fellow ag economist Jay Yates further explained how this situation can be understood in light of short-term investment priorities, saying that “it is because it [management software] is not as direct a connection with producing a crop.”
Across the pond, the United Kingdom’s National Farm Research Unit polled farmers last year about Internet usage. They found that a little over half of the individuals polled use the Internet in some capacity. Survey results showed that only “around two in five use this technology [Internet] to purchase farm inputs.”
While Internet usage does not directly correspond with farmers’ willingness to use software, it does give us an idea about the likelihood of farmers adopting new practices – such as shopping online to find a cheaper source than their local feed mill. Additionally, as Yates explained, the reason most people farm in the first place “is because they don’t want to sit in an office doing book work.”
Harvesting ROI Means Doing Smart Business
While farmers might prefer spending time in the pasture, the truth is that they still want to make money. Their farms are still businesses with sources of profits and losses that need tools to help ensure efficiency and maximize return. Many farmers are not just ignoring software, but they are also forgoing accounting best practices altogether.
In fact, Certified Public Accountant Paul Neiffer, in Farm CPA Today, estimates roughly 90 percent of farmers rely on the cash basis of accounting. He writes: “Most of these farmers use this method for their management of the farm business which does not accurately reflect the net income of the business.”
There is increasing recognition by many in the agricultural community, however, that successful farm management incorporates financial and technological considerations into operational decisions. For example, many of agricultural education programs, such as those at Texas A&M University and Cornell University, are producing graduates with a deeper understanding of how both business strategy and technology, such as software, impact farming operations.
“Farmers have invested all of their energy in the production side but at the expense of the financial side. They need to be paying attention to risks and input costs just as much as they pay attention to production.” – August Floerke, Texas A&M Graduate Student in Agribusiness
For many, migrating to a software-based farm management system might seem like a daunting task. But even if the transition to accounting software is not easy, it is worth the effort. In talking with Jones, she indicated that farmers and ranchers who took the Texas Agrilife Extension’s two-day course on QuickBooks – and implemented what they learned – saved an average of $1,600 annually.
Ag-specific Software Better for Farm Accounting
For those looking to adopt software, there are plenty of options available that can help manage a farm’s finances. But before farmers go out and give up their hard-earned cash for these programs, they should be aware of the specific agriculture accounting software solutions that cater to their unique needs.
Stephanie Elsen, in Agriculture.com, writes that agriculture accounting software is a better choice for most people in the industry – as opposed to a general off-the-shelf program for all types of small businesses. That’s because it comes customized for the exact needs of a farm or ranching operation. The software can also be set up to perform tasks, such as tailored production analyses using different standards of measurement (i.e., per bushel, per acre, etc.). This type of information can provide farmers with insight into which aspects of an operation provide profit and which are more work than they’re worth.
From the standpoint of farmers’ financial well-being, making informed operational decisions is a key step to increasing revenue streams and maximizing profit. At the same time, it can also be smart insurance – the difference between weathering out a rough year and losing the family land. With the right management practices and accounting tools in place, farmers can do more to get ahead and definitely plan ahead for a rainy, er, dry day.
Thumbnail image created by Mostly Dans.