Revenue streams. Variable costs. Operating profit.
If these terms have you cringing as if you’ve just spotted a swarm of Japanese beetles on your favorite David Austin roses, well then, we’ve got your back.
We also have a couple of great resources at the end of this series, including a downloadable income statement template to help illustrate the examples in these articles, as well as a printable glossary of terms that you can save to your desktop, post in your office, or keep in your notebook for a quick reference guide.
We can confidently assume that none of us got into farming because we love managing our finances. In fact, it’s likely that the polar opposite is true. You’re comfortable in the dirt, talking to the bees is your happy place, and you’d sooner be caught speed-walking laps in the midday sun around your field than whiling away the hours building financial statements.
For better or worse, a farm is a business. In order for it to survive for any length of time, we need to be aware of where our money is coming from, and where it is going to. Whether you are a back yard micro farm, or a multi-acre scaled operation, you can use that information to help take guesswork out of the equation and prioritize important decisions within your business.
First Steps
The first step toward building a sustainable farming operation – outside of growing, of course – is to understand its finances. The basic questions that you want to be able to answer for your farm are:
How much money is coming in, and from where? How much money is being spent, and on what? In an income statement, the answers to these questions are broken out by category: revenue and expenses. We’re going to dig into each of these categories separately in this series, and also talk about what to do with all of this information once you have it.