Optimizing Your Ag Accounting System Starts With Selecting the Right One

The ag economy could certainly use an upswing. Unfortunately, the current downcycle is lasting longer than the average historical patterns. In the past, the market has been consistent with a three-year pattern, where we experience three years of prosperity followed by three years of a down market. We are currently in an 11-year cycle, of which we experienced seven years of prosperity followed by the current four plus years of a down market.

Not knowing when this cycle may turn around, understanding your financial health and looking for opportunities to improve your business can be ways to help sustain your farm through the current cycle. Understanding your financial picture starts with having the right tools in place.

Options and Features

There are a variety of different software systems available. The key is finding the right solution for your operation. Some popular systems include QuickBooks, Sage or CenterPoint for Ag. Most can be installed locally on your computer, or they have cloud-based versions. The chart below compares these systems.

Information at Your Fingertips

The most important pieces of information to have at your fingertips are your balance sheet, income statement, cash flow statement and budget. Financial reports can help you gain a stronger understanding of your operation and identify areas of improvement.

Common practices include reviewing financials monthly or quarterly and comparing operating results to your budget, as well as developing a list of key measures such as current ratio, debt service coverage and debt/equity.

Using technology to identify trends and areas of improvement is the key to success. The answer might be diversification or looking for ways to set yourself apart from your peers. Technology could be the answer to this, and you could even consider using blockchain. These ideas will help your operation weather the current down cycle and make your farm even more profitable in a good market.

More Keys to Financial Success

One of the most important keys to success is knowing the break-even point of your farm or ranch. This will help you put your budget together.

Overall, the financial keys to a successful farming operation are to have a low-cost of production, a healthy balance sheet and working capital. Consider engaging your accountant to assist in setting up your financial reports or help you find the right bookkeeping solution.

If you have questions about improving your financial reporting, contact your Wipfli relationship executive or one of our ag professionals today.