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Applying the lessons of precision agriculture to farm accounting
The benefits of precision agriculture are familiar to most farmers.
With GPS technology powering specialized software and field equipment, you can make nuanced decisions about your field operations, saving you time and money.
But what many farmers don’t know is that the same principles of precision agriculture can be applied to managing farm finances. Don’t be in the dark about the true state of your farm’s finances by using outdated accounting methods: take advantage of more sophisticated accounting to find the true costs and profits of your operation.
The dangers of outdated financial management
As agricultural economist Danny Klinefelter says, “Farmers need to be able to drill down into the data to know where they’re making money and where they’re losing it.” Unfortunately, many farmers haven’t changed their accounting methods in decades, missing out on new technologies and methods that provide a better business picture.
Simply adding up all your revenues and subtracting your costs doesn’t give you a complete picture of where your margins are highest and where they’re tight. This kind of accounting is the equivalent of spreading a fertilizer in equal amounts across all of your fields, no matter what you’re growing or what the soil needs.
This method of accounting, called cash-basis accounting, doesn’t adjust for inflation, and doesn’t provide you a nuanced understanding of what parts of your business are producing the most wealth for you. It is imprecise and inefficient. Luckily, there’s a better way.
Applying precision to your finances
The better way to track your finances is with managerial accounting. Managerial accounting is much more site-specific. For example, with managerial accounting, you can track the cost of processing for one of your crops, so you can better understand whether that crop made any profit at the end of the season. You can also better evaluate whether a specific field is worth renting, or if you’d be better off purchasing it.
One of the best advantages of managerial accounting is that it focuses on using your present finances to make more informed decisions about the present and future of your operation, not just tracking your past finances.
How to get started
As with precision agriculture, applying precision to your finances requires a change in mindset, new tools, and updated technology. Unlike precision agriculture, however, precision accounting can be implemented for a relatively low up-front cost.
Most farms who implement managerial accounting use software that helps guide them through these decisions and tracking. However, with more and more of your accounting moving to software and computers, you should also make sure your financial data is protected. A SaaS system like AgCompass keeps your data, including data stored within accounting software, safe and accessible. (Learn more about what SaaS is and what it can do for your business).
For example, many farms run the Farm Business Systems accounting software on AgCompass, giving them both the power of managerial accounting and the peace of mind to know critical data won’t be lost if a computer crashes. Additionally, by using a virtual desktop product like AgCompass, you can easily and securely share your data with outside accountants and consultants. This can be especially helpful if your operation is in transition, whether to a new kind of accounting or to a new generation.
Want to talk about how AgCompass can help you take advantage of precision accounting? Give us a call today.