Eisenhower once said "Farming looks mighty easy when your plow is a pencil and you're a thousand miles from the corn field." But for the back office, their plow is the pencil. While the pencil itself may not make the actual work in the field easier, applying guidelines in the back office can make the business of farming easier.
The guidelines created by the Farm Financial Standards Council (FFSC) can help improve the quality of financial management standards on your farm. These guidelines serve as a framework for financial management practices in the agriculture industry. Implementing these standards will help your farm establish benchmarks, make informed decisions, and have accurate and comparable financial data to refer to across accounting periods.
What Are the Farm Financial Standards Council Guidelines?
Thorough analysis of your farm’s finances requires adequate reporting. To streamline the way farms record their financial data and ensure consistency across the agriculture industry, the Farm Financial Standards Council has created a set of guidelines to follow. Seasoned accountants are likely familiar with the Generally Accepted Accounting Principles (GAAP), but farms require unique practices that lead to a departure from this particular set of rules.
To assist with this departure, the FFSC guidelines address alternative reporting methods that will serve the same purpose as GAAP, specifically related to farms and ranches. It’s important to note that the FFSC still strongly endorses GAAP regulations wherever possible to help follow accounting best practices.
In addition to standardizing recordkeeping across farms, the guidelines set by the FFSC aim to improve financial management practices and help farm owners make informed decisions regarding their business operations. Following these guidelines will ensure that farms better understand their financial performance through accurate and timely completion of financial statements.
Challenges in Implementing FFSC Guidelines
Following the Farm Financial Standards Council guidelines are often easier said than done. Whether you are relying on your own manual reporting methods or are using legacy technology, trying to properly implement reporting standards can take some time to properly execute.
As with many business practices, one of the hardest challenges farmers face is getting started with implementing accurate reporting procedures in accordance with the FFSC guidelines. However, farms that utilize software programs to organize their data and generate accurate reports will be able to easily access and analyze their financial records as soon as they are ready to get started.
The FFSC recognizes that accurate record keeping of financial documents is essential, but not everyone doing this reporting is an accountant. Additionally, not every farm operation has access to farm management tools, or – if they have implemented an accounting software program into their standard workflows – they might not know how best to utilize that program to maximize productivity. To help these individuals complete sufficient reports, the FFSC has created their own set of guidelines along with a checklist to streamline implementation processes.
Without the right tools, financial reporting can take much longer than it needs to. Gathering up-to-date information and properly organizing it can take a lot of time, leading to inefficiencies and increased chances for mistakes to be made, especially when using systems that don’t have automation capabilities. However, software that is specifically designed for farm management accounting and analysis can greatly improve productivity on farms thanks to easy-to-use interfaces and automated workflows.
To adequately implement FFSC guidelines, the farm producer and all employees must remain committed to accurate tracking and reporting practices. Beyond implementing a farm management software tool, everyone involved in business operations must know how to use that tool. Sometimes, if an operation has adopted a new accounting system, there may be an adjustment period to help onboard employees and understand the ins and outs of new recordkeeping procedures.
How to Implement Farm Financial Standards in Your Business
Farm financial standards are put in place in order to have a universal reporting system that all farm operators can use for accurate and detailed processes. Here are six tips to help you effectively implement these guidelines on your farm.
1. Use Farm Tech
We’ve come a long way from manual-entry reporting methods. Now, updated farm tech allows for automated reporting, meaning you can easily generate reports that provide insight into your financial records and statements. These software tools can complete an accounting task with just a few clicks, allowing you to spend more time focusing on operations and less time gathering documents.
2. Conduct Monthly Reporting
The FFSC recommends creating monthly reports consisting of bookkeeping and associated analyses. Better yet, you can gain more accurate insights by creating more frequent reporting standards on your farm. If your farm hasn’t begun implementing FFSC guidelines, it is also recommended to do so at the beginning of a new tax year.
3. Gather Data
To generate the financial reports needed, you first need to gather the right data. This includes products sold, purchases made, inventory, payroll information, assets, and current liabilities, to name a few. With the right data in hand, producers should be able to create detailed reports for income statements, balance sheets, and cash flow statements for the appropriate accounting period.
4. Create Benchmarks
Comparative data is essential for informed decision making. To get started, you first need to establish benchmarks. This will set a foundation for your current financials, including inventory, accrued expenses, accounts receivable, and accounts payable. With this information, you can gauge your current standing and establish goals for growth in the future.
5. Use Industry Terminology
Accounting practices are daily similar across industries. However, agriculture practices tend to deviate from regulations established by the Financial Accounting Standards Board (FASB). To help make sense of these deviations, the FFSC provides recommendations on definitions, interpretations, formulas, and limitations of standard accounting practices in relation to nuances that farms tend to experience.
6. Adhere to FFSC Guides
The FFSC doesn’t want to make reporting too complex or difficult for farmers, especially if they don’t have much accounting experience. To help simplify the way farms implement their standards, the FFSC has put together a resource for proper execution.
Streamline Farm Management Procedures with The Right Software Tools
In order to achieve your financial goals as a farm operator, it’s important to follow the guidelines set by the FFSC. Even if you don’t have much accounting experience, there are helpful software tools available to simplify the way you gather and analyze financial data, in turn creating a foundation for informed decision making.
FBS Systems provides software solutions to help farm operators increase profitability through accurate reporting and analysis methods. Our products will efficiently generate the FFSC ratios needed for accurate reporting metrics and influence the way you design your budget around your long-term goals. To learn more about software tools for farm management, reach out to our team today and schedule a demo!