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Farmers run a highly complex business operation. Successful farm businesses use farm management software (FMS) to track their costs, make informed management decisions and scale their farm production for an improved bottom line.
Daily on a farm, hundreds of pieces of information are generated upon which farm management decisions are made. How farmers monitor and control the costs incurred with those decisions directly affects farm profitability.
An effective farm management software (FMS) system, like AGRIVI’s farm management system, monitors all farm income and costs in a farm operation, helping farmers identify areas of cost savings and opportunities within their farm business to scale and expand. FMS systems are a crucial component in the digital ag revolution, enabling more profitable and production agricultural operations.
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What are Typical Farm Expenses?
There are many operational expenses tracked in farm accounting software.
Prepaid farm supplies like seeds, livestock, fertilizers and crop production products are typical yearly expenses. Other expenses include costs related to land and farm business structures, like a mortgage or rent; farm equipment-related expenses, including the purchase of equipment, fuel and maintenance; farm labor or contracted services; and basic utilities to run a farm operation, including electricity, sewer, phone and internet services.
For a thorough overview of typical farm expenses and how the Internal Revenue Service (IRS) allows farmers and growers to deduct their expenses against income, see Publication 225, The Farmers Tax Guide. Publication 225 also includes instructions on filing a Schedule F; the IRS required tax form for farm businesses.
Variable Versus Fixed Costs on a Farm
For farm businesses, just like any business, it is essential for expense tracking and forecasting to understand the difference between fixed and variable costs.
Fixed costs or fixed expenses tend to change very little over time and do not change with the production level. They are easy to forecast and plan for as they will remain constant. Variable costs are costs that wouldn’t be occurred without business production that year. As such, they tend to be more unpredictable and can change suddenly relative to market prices or the yearly endeavors of the farm operation. Variable costs are harder to plan for and can hurt cash flow.
Fixed Costs in a Farm Budget
Fixed costs are not affected by short-term decisions; if an asset, they are prorated over the expected lifetime of the asset. Most farm operations have fixed costs comprised of:
- Taxes, insurance and interest payments. Including real estate and personal property taxes, insurance payments on buildings and equipment and interest payments on long-term debt and farm maintenance costs.
- Capital assets. Such as machinery, buildings and equipment.
- Breeding livestock or long-term plantings. In the case of livestock, these would be the animals used for breeding purposes to produce the product (in a cow and calf operation, the cow would be a fixed asset), or, in the case of perennial plant production, something like an apple orchard or wine grape vineyard planting.
Variable Costs in a Farm Budget
They are many variable costs (also known as operating costs) tracked in farm record keeping:
- Seed or livestock (in short-term livestock operations). The seed to be planted that year, or in the case of annual livestock production, the animals — like the purchase of chicks for a meat chicken operation,
- Fertilizer, feed, marketing supplies and crop protection products. All the items needed that season to produce the crop.
- Lease and rental payments and equipment costs. Such as lease costs for land farmed that year, rented machinery or equipment and fuel, and maintenance and repair costs for equipment.
Use Farm Management Software for Farm Costs Tracking
Cloud-based farm management software (FMS) systems are valuable for farm record keeping of variable and fixed costs.
For instance, good bookkeeping through an FMS system can help farmers control their chemical and input inventory management, alerting them to the best time to restock their inventory shelves based on fluctuating market prices and their current inventory level versus expected needs.
AGRIVI’s system is the perfect tool to help farmers keep on top of their costs and forecast their expenses by monitoring all costs associated with running their farm while detecting additional areas of cost savings.
What Are Some Useful Tools for Tracking Farm Costs?
Tools for tracking farm costs are evolving rapidly, with multiple cloud-based expense tracking and receivable programs now available to farmers. Here are some of the ways farmers can track their farm costs.
- Excel Sheets
Excel sheets for tracking costs have been around for a long-time. However, excel sheets programmed for specific farm operations — like a ranching enterprise or specialty crop production are available. These spreadsheets are more valuable than starting with a generic spreadsheet as they are formatted with most of the typical costs seen in a farming or ranching enterprise. Enterprise budgets can be particularly useful as they help a grower assess the costs and profitability of a new farming enterprise before investing in it.
- QuickBooks and Similar General Accounting and Invoicing Programs
Quickbooks, Freshbooks or other generic accounting and invoicing programs can be used for farm businesses. They are typically inexpensive and straightforward to use. However, while they usually include basic bookkeeping integrations like expense reports, receivables, cash flow and tax documents, general accounting programs typically don’t include the specific management tools useful for farm and ranching businesses.
- Farm-Focused Mobile Apps
There are multiple mobile apps available focused on specific aspects of farming and ranching operations. Like a grain inventory management tool or an app managing a cattle breeding operation. These apps generally don’t include the whole scope of a farm business and have to be combined with other tools for a total picture of farm costs and profitability. Having many separate apps and tools to manage can be cumbersome and time-consuming, and they often don’t integrate well with each other requiring double data entry.
- Farm Management Software
Farm management software (FMS) systems are often available as mobile apps. The difference in software systems specific to farming operations is that they are a whole-farm management tools rather than specific to particular areas within the farm. AGRIVI’s software records and stores farm data, analyzes farm activities, oversees labor costs and workforce management, tracks farm business expenses, budgets and profits and controls the integration of farm task automation, such as irrigation controls.
Can Credit Cards Be Used with Farm Management Software?
Yes, as long as the system has integration capabilities enabling credit cards. But most software systems allow using credit cards as payment for invoices.
What Sort of Functionality is Important in a Farm Management Software System?
Look for a software system focused on the farm operation level your business is operating at. For instance, are you running a small farm, a large-scale farm, a farm enterprise with multiple locations or a food business that needs help with supply chain management in various farm operations? An FMS system should also be easier for data entry and integration with your bank accounts.
Do I Really Need Farm Management Software?
A farm operation will only be as successful as the records they keep and how they incorporate those records into their management decisions. Farm and ranching operations are unique compared to many other businesses because of the high degree of variability within their production cycles. Tracking and understanding farm data can also lead to better productivity and on-farm sustainability.
Farm management software (FMS) like AGRIVI provides a tailored tool for farmers and growers by tracking expenses and profitability. AGRIVI is a one-stop solution for farm bookkeeping, field analytics, crop production, work order management and the many needs farmers and growers experience daily.