By Steven Severe
Accountants can be your friend….really!!
From an accountant’s perspective using the Farm Financial Standards Council’s Financial Guidelines for Agriculture makes perfect sense. Using the Guidelines gives one direction for preparing consistent, reliable and comparable financial statements for a year-to-year look at the agricultural operation. This allows all parties to understand some of the strengths and weaknesses of the operation.
It can be a little more difficult to get a commitment from the ownership and management to use the Guidelines. Some of standards are not what they may be used to using. It can be a matter of change, and who wants to go through change when your life is already full of the changes that Mother-Nature throws your way on a daily basis.
Some managers have been brought up with the thought that accounting is evil … that there should be an adversarial relationship. This should not be the case. We should all be working towards the same goals in making the operation the best that it can be. If we don’t have the same goals it won’t matter what we do … we won’t achieve optimum performance. It is like a 3-legged stool — if one of the legs is broken the stool does not work as well as it should.
Management, owners, and accounting need to have a desire to use the Guidelines. They should develop an acceptance for, and an understanding of, those standards that apply to their operation. They also need to find a commitment to use those standards in their operation.
From the producer’s perspective, knowing that your financial statements have been prepared consistently, applying the same standards year after year, allows you to have much more confidence in the numbers that your accounting system is generating for you. You can do true comparatives. You can also better understand your operation and when the numbers aren’t exactly what you thought they would be, it will not take you very long to think through what the differences are and to know how to address those differences in the future.
By tradition, accounting is an after-the-fact reporting of what has transpired within your operation. Traditionally we have used accounting to provide a means to prepare tax returns, which is of great importance. But there is also great value in tracking where you have been and where you are going. Being able to look at statements that have been prepared consistently using the financial standards set forth by the Council should allow you a greater understanding of your operations.
Stephen Severe is CFO at Padlock Ranch Company, Ranchester, Wyo. He has an MBA from Brigham Young University and a BBA from Boise State University. He has 30+ years experience in agricultural enterprise and cost accounting and has been CFO at Padlock Ranch for 11 years.
