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Analyzing machinery costs
As you look through Mike Blashill's scrapbooks of machinery that have come and gone over the years, there's a definite progression that's taken place.
“I've always had my eye on growth, and obviously, to grow, I have to have a little bit more and a little bit more equipment,” he says.
Whether it's new, used, or even a lease, Blashill has been able to keep equipment costs down with a conservative equipment strategy.
While every scrapbook entry documents the evolution of his operation with a photograph, purchase date, and often times the original receipt, what's lacking is a concrete system for analyzing each machine as an investment.
For the 20-plus years he's been farming, Blashill's system for calculating machinery costs has been very basic.
“Everything was in a filing system. When a new bill came in for the month, I created a file for it, wrote the amount down in a notebook, and kept a total off to one side,” he says.
“Everyone analyzes equipment purchases and costs a little differently,” says Brian Stark of Farm Works. “Some analyze every piece of equipment through a spreadsheet; others are at the opposite end of the spectrum and don't do it at all. Is Mike's the most cost-effective way to do it? Probably not. But that's how he's been able to make it work.”
With an equipment lineup worth over $500,000, Blashill knew it was time to implement a system that would help him more carefully analyze the cost per acre of machinery.
He recently invested in Farm Works Mapping, which is integrated with its accounting software, and retails for $750 each. He also signed up for the Update Service Plan, which includes 12 months of toll-free phone support and software enhancements and updates for $300.
This commitment comes with an investment of time, too. Installing the software on his computer is fairly straightforward. But to get the most out of the programs, Blashill invested nearly three days in training. There's also time spent inputting all of the data of his operation.
But compared to his old system, it will be time well spent.
With Farm Works, bills not only are entered into the system, but also can be allocated to a specific piece of equipment.
“As repair bills come in, this system lets me enter that expense and allocate it to the appropriate machine,” says Blashill. “The system will then give me a cost per acre for that particular machine. It's a great way to track my expenses and to know how much each machine is costing me each year, especially since much of what I buy is used and breakdowns are common.
“Being able to generate a report at the push of a button vs. what I was doing is a huge benefit,” he says. “Even though I kept all of my information organized in a file, it would take me three hours to compile data. Now that it's on the computer, it will be more efficient.”
But the programs allow Blashill to do much more than that.
“Machinery costs are often the forgotten input when tracking profitability per field,” says Stark. “Your average off-the-shelf accounting software does a poor job of tracking costs to farm machinery, let alone profitably per field. Most farmers don't realize this until they start using it. Our software is quite unique when it comes to tracking machinery costs.”
For example, Farm Works Accounting allows you to choose an expense account and then select an enterprise, like a tractor, and allocate the cost to it.
“As the machine is used on the fields, by entering field records manually or via reading data from precision ag displays, the costs spread to the fields, and this updates the fields' profitability,” notes Stark. “As more costs are allocated to the machine, more costs are passed down to each field it touches.”
When Shannon Roder invested in Farm Works more than 15 years ago, his requirements were simple.
“All I wanted was record keeping for the fields and a program to do my accounting,” recalls the Marathon, Iowa, farmer.
Attending a mid-1990s training session in Des Moines, Iowa, then owner and creator Norm Teegardin outlined the benefits of the Farm Works program.
“During the class he said, ‘We have about three guys in this room who use Pioneer Dollar Wise.’ My head just dropped because I was one of those three guys,” laughs Roder.
Teegardin went on to tell the group not to worry because by the time he was finished, he'd convince them to use his software.
“I ended up buying the program that day,” says Roder. “And I use it as a management tool.”
He says one feature that really helps improve his operating costs is the enterprise report since it allows him to closely analyze inputs attached to machinery.
“The program has the capability to run a report at the end of each year,” he says. “I use it to analyze each piece of equipment and what I've spent on it in repairs. At the end of the year, I use it to determine where I stand with machinery costs. Is this piece of equipment costing me too much? Do I look into a trade?”
He adds that this software can be as broad or as detailed as you want it to be. For example, it allows you to track the hours and acres covered with machinery.
“You can track tach hours on a tractor if you want to be that detailed,” he says. “If you want to tie your fuel costs to machinery, you can do that, too. There's just so much in this software.”
With nearly $300,000 invested in his equipment, analyzing the value of each piece to his entire operation is critical, especially since all 700 acres he covers are rented.
“My land – and these record prices – could go away tomorrow. So tracking costs, especially equipment, is critical to my operation,” he says. “What it comes down to is efficiency. There's going to be a point when things will change, and I'll be glad I did what I did. If I have newer pieces of equipment, I don't have to worry about the repair bills. I can still keep running and be very efficient with everything.”
That's where the enterprise statement telling him what he's spent on each piece of equipment comes in, he says. “You realize, ‘Geez, I sank $5,000 into that tractor last year. I could upgrade to a newer model and that could be part of my payment instead.’ ”
“I think every farmer is looking for this type of management software, because tracking machinery costs affects your bottom line,” says Stark. “This is very powerful information that allows you to make positive management decisions.”
“It's important in the times that we live in and where we're heading to analyze costs, and machinery is a big part of that,” says Roder.