For years farmers have been reporting financial information on a variety of forms for various reasons. University of Tennessee economist Delton C. Gerloff   and farm management specialist Robert W. Holland Jr. say effective management of a farming operation today requires that records be kept so managers can make informed decisions affecting the profitability of their farms.

Some lending institutions, the specialists say, require detailed business and personal information on everything a farmer owns, as well as the status of unpaid loans. They may also require production records and an estimate of expected sales and expenses for the next year. Increasingly, regulations point toward the keeping of chemical application records and soil and water conservation plans for environmental concerns. The Internal Revenue Service (IRS) requires farmers to report cash sales, expenses, depreciation and information on government program participation.

Farm records are often maintained only for IRS filing purposes. While tax records are necessary, additional information may be needed for informed management decisions. Farm business decisions that are not based on accurate farm records may lead to less profit. The efficient management of a farm operation requires sound record-keeping and record analysis.

Reasons for keeping records include proof of financial dealings, as decision aids, to meet institutional requirements or environmental regulations.

Record keeping, they note, refers to keeping, filing, categorizing and maintaining farm financial and production information. Record-keeping can be accomplished through a variety of methods, from a basic hand record-keeping method to an elaborate computerized system.

Record analysis, on the other hand, refers to evaluating farm records. The evaluation process allows a farm manager to make informed decisions based on actual (or projected) farm performance. Obviously, record analysis cannot take place without first keeping records. Therefore, establishing and using an effective farm record-keeping system for an ongoing farm operation aids in farm planning, informed decision-making and analysis of both production and financial records.

Read the full article, including tips on types of records to keep, selecting a record-keeping system and analyzing farm records.