Your farm store is buzzing, and the sales are flowing in. Customers are raving about the delicate marbling of your steaks, the sweetness of your homegrown peaches, and the crisp deliciousness of your farm-to-table vegetables.
There’s just one problem: You aren’t making any money.
Bookkeeping is a must-have skill for any farmer hoping to launch and grow a profitable direct-to-consumer (DTC) farming business — but it isn’t the easiest task on your to-do list.
That’s why we’ve created this quick guide to bookkeeping for farms. We’ll cover some of the most common pitfalls — plus the strategies and tools you need to avoid them.
Many farmers, especially newer ones, rely on what accountants call the “shoebox method” of bookkeeping. Receipts get stuffed in a drawer, invoices are piled up on a desk, and bank statements get forgotten in an email inbox.
While tempting, this approach makes it nearly impossible to analyze your farm’s overall financial health. You overlook expenses, miss sales trends, and panic when it’s time to file taxes.
This mistake has an easy fix: Invest in software that digitizes your farm store financial records.
We recommend pairing a point of sale (POS) system with accounting software. Your POS system helps you track money in (sales), and the accounting software helps you track money out (operating expenses).
If you choose POS and accounting software solutions that integrate, you can see all of this data in one place. For example, GrazeCart, our all-in-one farm store POS system and e-commerce platform, lets you export sales data directly to QuickBooks with just a few clicks.
If your farm started as a passion project and then turned into a profitable business, you might’ve made the mistake of merging your personal and farm expenses.
Sticking with this approach can cause major problems as your farm grows. First, many USDA programs and agricultural grants require clear financial statements showing your farm income and expenses.
It can also make it much more difficult to sort through your financial records during tax season.
Fortunately, this mistake has a simple solution: Open dedicated accounts for your farm. All you need is a business checking account for your farm income and expenses, and a business credit card for your farm purchases.
Unfortunately, farming equipment doesn’t last forever. The value of tractors, trucks, and other major pieces of machinery declines over time.
Ignoring this depreciation leads to two main problems:
The changing value of your equipment might seem minor, but it’s important to keep in mind when monitoring your farm’s financial health.
First, you need to understand the IRS’ rules for calculating and reporting capital asset depreciation. Mississippi State University’s Extension program has an excellent resource that outlines the what, why, and how of depreciation for farms.
You can also use accounting software to help. For example, QuickBooks has a built-in depreciation tracker, so you don’t have to calculate it by hand.
Related Read: Perishable Food Delivery: 6 Low-Cost Vehicle Options
Unlike other businesses that earn steady revenue year-round, farm income is cyclical. You make the most money during the busy fall harvest season, then have to prepare for the planting season after a long winter with minimal sales.
In other words, you only make sales for a few months out of the year — but the expenses never stop coming.
If you don’t plan for this gap, you might struggle to cover equipment repairs and maintenance, animal feed, and other overhead costs when it matters most.
For year-round financial security, there are two things you need to know: your income trends and your expense timing.
Check your POS system’s sales reports at the beginning and end of each new season to identify when sales peak, how much revenue you bring in overall, and when sales start to decline.
Then, check your accounting software or spreadsheet to answer the same question about your expenses. When are seed and input orders due? When does labor scale up? When are you most likely to purchase new equipment or contract repairs?
This investigation should help you create a 12-month cash flow forecast. Purdue’s Extension department offers a handy template to help you get started.
Your biggest expenses are often the most obvious: animal feed, heavy equipment, and labor.
But a significant portion of farm operating expenses are smaller and harder to track — especially if you run a DTC operation.
If you don’t factor these costs into the prices of your farm-fresh meat and produce, you’ll lose money instead of making it.
[H3] Solution: Run an Annual Expense Audit
Track how much it costs to produce and sell each of your products through its entire journey from your farm to a customer’s table. For example, instead of simply calculating the price of steak based on the livestock purchase, feed, and butchering costs, make sure to include:
For example, you may need to charge more for your products online versus in your on-farm store to make up for the additional packaging, shipping, and handling costs.
Related Read: How To Price Your Farm Products: A Quick Guide for Farm Stores
Many farmers — especially those just starting out with direct sales — undercharge for their products. Sometimes it’s because they haven’t done a true cost of production analysis, sometimes it’s because they’re matching grocery store prices, and sometimes it’s because they don’t have a solid strategy for selling variable-weight items.
For example, a beginner farmer might sell a whole chicken at a flat price of $20 each. If some birds weigh three pounds and others weigh five, the effective price-per-pound swings dramatically — and the heavier birds may be selling at a loss if the flat price was set based on an average weight.
Once you’ve completed a cost of production analysis and identified a price per pound that’s actually profitable, it’s time to implement variable-weight pricing.
The best way to do this is to invest in a farm store POS system and e-commerce platform designed for variable-weight pricing. This lets you set a price per pound, weigh your products, then finalize the sale with an exact weight.
For example, let’s say a customer places an order for two ribeyes on your website. You can display the average price at checkout, then actualize the total when you’re packaging their order. This gives customers transparency about what they’re paying and protects your margins.
Related Read: Variable-Weight Meat Pricing 101: The What, Why, and How
That’s everything you need to know about bookkeeping for farms — now all you need is the right tools to implement these strategies.
GrazeCart is an all-in-one farm store POS, e-commerce platform, and management software designed to help you sell farm goods online and in person. Along with a user-friendly website builder and order management system, it includes variable-weight pricing, inventory tracking, flexible pricing options, subscriptions, and more.
See GrazeCart in action by scheduling your live, personalized demo today!