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Using QuickBooks for valuable farm business reflection

Rebecca Lampman Published on 06 November 2015
Cow graph graphic

A really smart anonymous person once said, “Most of the problems in life are because of two reasons: We act without thinking – or we keep thinking without acting.”

Daily chores and all of the demands the dairy farm places on families create an abundance of action, but for farms to remain solid financially, it is important to take time to reflect on those farming and financial actions. A great way to do this is by accessing valuable financial information through the QuickBooks reporting features.

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An important first tip before creating your reports and analyzing them is to remember that the quality of the reports created will only be as good as the quality of the financial information entered. Before generating any reports for your farm team to look at, make sure all aspects of your financials are up-to-date.

This means that accounts are balanced and income and expenses are entered and properly categorized. Make sure interest expenses on loans have been accounted for and all loan balances are up-to-date.

There are countless reports you can create in QuickBooks. Here is the step-by-step way to create three different reports that will help you and your family farm team members make smart financial decisions and learn more about the condition of your business.

The company snapshot

This is a wonderful report that gives you access to all kinds of detailed financial information about your farm from one page. The great thing about QuickBooks is that in any one of these reports, additional information is just a double-click away. Hold your cursor over any line item, graph line or piece of the pie chart, and a looking-glass icon will appear. This tells you additional detailed information is available with a double-click.

To create this report, go to the “Reports” tab and click on “Company Snapshot.” You will see three tabs at the top of the report page. Make sure the company tab is highlighted. Here you get a completely customizable and printable page that displays account balances, income and expenses, previous-year income comparison, previous-year expense comparison and a pie chart showing you a breakdown of all dairy farm expenses. 

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Profit and loss summary previous-year comparison

The profit and loss summary report is quite valuable as well, but I have found that my husband and I really like to compare our profits and losses of the current year to the previous one. This way we can find out whether our income is growing or contracting. This also is a great report for figuring out how quickly expenses are rising and in what categories.

While profit and loss reports are essential to end-of-year tax planning, this is a great report to run on a monthly basis so you can identify inefficiencies and regularly fine-tune your business, saving you money.

To create this report, go to the “Reports” tab, click “Company and Financial” and then “Profit and Loss Summary Previous Year Comparison.” Once you have created this report, note that when you place your cursor over the different income and expense categories in the report, you can then double-click on those line items and see the specific transactions that make up that particular amount. Numbers

Balance sheet

The balance sheet is often what a bank asks for when creating your operating loan documents. The balance sheet report shows you what your assets are versus your liabilities. The balance sheet is also great for performing a quick self-check-up on your farm business to make sure your operation is financially sound.

To create this report, go to the “Reports” tab, click “Company and Financial” and then “Balance Sheet Standard.” Using the information from the balance sheet, there are two different common and simple-to-figure ratios you can extract from this report that will give you a good idea for how strong your farm operation is.

The first ratio is called the current ratio. This tells you whether or not you can pay back your short-term liabilities with your short-term assets. To figure your farm’s current ratio, simply divide your current assets by your current liabilities. The higher this number is, the better. If you have a ratio of less than 1, this suggests you are currently having trouble paying your short-term liabilities with your liquidity.

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The second ratio you can figure from the balance sheet to determine the health of your dairy farm is the debt ratio, which helps you to determine whether or not you have plenty of assets to cover your debt. To figure out your debt ratio, take your total debt and divide it by your total assets. The lower this number is, the better, and a debt ratio of less than 1 tells you that your farm currently has more assets than debt.

No doubt, as a dairy business owner, you probably already have a pretty strong sense of where you are in terms of assets and liabilities. However, knowing how to quickly figure out these ratios serves to further educate you about your business and can make for a much more productive and informative meeting with your banker and your accountant. It can also help you when making big decisions for your farm that involve accumulating different types of debt.

There are many more useful QuickBooks reports to access. The cows must be milked, and the tractors must be fixed, but it is just as vital to take time to review your financial information, and the QuickBooks reporting feature makes analyzing all of that action on the farm pretty easy. Now sit down and get to it.  PD

Rebecca Lampman works with her husband and three children on their 250-cow dairy in Bruneau, Idaho. She loves her animals, long walks on the farm and especially enjoys generating in-depth financial reports for her husband to examine late at night after a busy day of farm activity.

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