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Everything you wanted to know about: Farm record keeping

by Louis de Jager, Kameelboom Akademie, Comprehensive practical farmer training

Record keeping must be regarded as a means to reach a certain goal, or else it will be a waste of valuable time.

Records can be defined as systematic collection and registering of all relevant information concerning the farming enterprise and the household, the analysis of the results, the diagnoses of weaknesses and the planning to rectify the detected weaknesses.

Essentiality of record keeping:

Knowledge of the enterprise

• Due to the progress in production techniques and the economics of farming, the management function of the entrepreneur became so complicated that he can only be successful if he remains well informed about all aspects directly or indirectly concerning the production and marketing of his products.

• A complete knowledge of all income and expenditures is a necessity to calculate the net profit or loss. A complete evaluation of all assets and investments is necessary to calculate the interest earned on capital invested. These measurements, along with others, will show the farmer his degree of success and whether it will be advantageous to continue in the same way.

• Keeping track of the profitability of every department is necessary to eliminate weak points in the production process.

• The farmer must be able to calculate the efficiency of the different production factors.

• Legislation determines that every farmer must submit statements for income tax, VAT, and agricultural census. This information plays a major role in the determination of agricultural policy in which the farmer is closely involved.

Limits to the human memory

If the diversity and volume of all the information is considered, it will put enormous pressure on the memory, especially if no records are kept. The total investment on a farm can run into millions and no businessman can dream about running his business without the use of records.

The influence of time

Without keeping records, a farmer might perhaps be able to able to handle one year’s information, but it will be almost impossible to recall the details after a few years. It is often exactly this information on a number of years that puts the farmer in a position to come to accurate conclusions about the results of a specific year or enterprise.

Advantages of record keeping:

Advantages of a financial nature:

• The farmer can determine his financial position at any time. By analysing the records of a series of years, the farmer can also determine whether his financial position improved or deteriorated. The difference between assets and liabilities represents the farmer’s own capital.

• Any farm record system requires the recording of all transactions made in order to reveal a list of all income and expenditure that can be referred to in future. A comprehensive record system will even reveal the smallest items of income and expenditure which the farmer normally forgets, but which can make a positive contribution to the structure of his income and expenditure.

• A farmer can even adapt his personal and household expenditure according to the financial income as reflected in his farm records.

• In negotiations with financial institutions, the farmer who can produce a complete set of farm records will have an advantage over his counterpart with no records. By studying the records, the bank manager will have facts to support his decision when granting or refusing a loan.

• The calculation of taxable income will be simplified if reliable records are available. An accountant will charge much less if supplied with full particulars. When keeping

• comprehensive records, the enterprising farmer will be able to prepare his own tax returns.

Advantages for organisation and management

• At the end of the production year, the different farming operations can be analysed separately to determine their efficiency and profitability. An operation that is appears to be profitable on the surface might be running at a loss, but because the profits of other enterprises compensate for that loss, the farmer will not be aware of that loss. By comparing the results of a series of years, the farmer will be able to determine whether the profitability of the different operations increased or decreased.

• Accurate efficiency measures for the total farming enterprise as well as for the various operations can be calculated from the records. Examples are: Net farm income per R100 capital investment; lick cost per large stock unit; gross income per R100 variable cost for the beef cattle enterprise, et cetera. The efficiency measures can be applied to identify the weak links in the farming organization.

• Future planning of the farming business will be impossible without the necessary background information.

This information will only be available from comprehensive and reliable records. Due to changes in production and price tendencies, continuous adjustments will have to be made to the modern farming structure, and farmer who keeps records will be the one to be in excellent position to adjust easily and timeously.

The record system:

The extent and type of records varies according to the farming organization. Record keeping is however only a means to a certain goal and not a goal in itself. The farmer keeps records in order to be able to diagnose and rectify the weaknesses in his enterprise. Any record system, irrespective of the kind of farming enterprise, consists of three parts.

Physical and economical inventory

• An inventory includes the values of all physical assets of the farming enterprise:

• Land appraised at market value

• Buildings and other fixed improvements appraised at replacement cost minus depreciation

• Implements and tools normally appraised at cost minus depreciation or the present market value of similar implements and tools minus depreciation.

• Producers’ goods in stock appraised at purchase price plus transport.

• Farm products appraised at net market value or production costs.

• Livestock appraised at market values and stud animals at purchase price.

Physical production data

Livestock production

The type of enterprise will determine the detail of the records. Basic physical records like stock numbers, numbers purchased and sold, numbers dead and stolen, and the numbers slaughtered for the household and labourers as well as feed consumption, and dip and vaccination programmes, are important.

Grazing records

These records are directly connected to livestock production records. The number of animals and the number of days that the animals are kept in each camp must be noted accurately. This will help with grazing management.

Labour and mechanization

By keeping records of what each labourer does every day, it will be possible to determine if labourers are productive and economical.

Financial data

One third of a record system consists of financial data with the aim to determine the eventual financial results and the economic position of the farming enterprise.

Income and expenditure records

These records are the most important part of any farm record system. All financial transactions should be noted accurately and systematically. Each entry must be described comprehensively, for example sold to whom, bought from whom, the product or goods, the amount, and the date. It is also important to specify VAT separately. Maybe it will be easier to keep records of each enterprise separately. Net farm income as well as all other efficiency measures can be calculated from the sets of records described above.

The requirements of an efficient record system First, a record system must comply with the requirements of a farm management information system and it must also comply with the requirements of the Receiver of Revenue.

The requirements can be summarized as follows:

• A record system must be simple and easy to keep up to date.

• It must make provision for comprehensive information.

• The information must be available easily and quickly.

The worrying question is always to determine the person responsible for the administration of the records, but whoever it will be, he or she must be supplied with the necessary information on a regular basis, and the farmer will always be responsible to see to it that the records are properly kept.

The farmer must be able to analyse, interpret and evaluate the records. If you experience difficulties in doing this, the local extension officer will be able to help.

A final important remark: Make sure that the financial year coincides with the tax period, that is March to February.

For practical training in agriculture, contact Louis de Jager at 082-211-1533

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