Sharing one bank account between farm and family is a problem, because you cannot read the farm’s result from that account on its own. The decision to invest, wait or cut then gets made on a number that mixes the farm with the household. The fix needs no accountant and no software. Take three months of the bank statement you already have, mark each line farm or family, and count the lines you still cannot assign to one side.
The mixing is easy to miss, because the balance at month’s end can still look fine. A survey of 139 farm owners in southern Brazil found that only 41 percent kept personal spending separate from the farm’s while 93.5 percent said they knew the profit the property generated, so many of those who said they knew their profit were keeping farm and household spending together. It is one small Brazilian sample, not a rate for your region.
Why can’t you read the farm’s result from a shared account?
Because no line on a bank statement carries a note of whose money it was. Every deposit and payment sits in one list, and a farm line looks the same as a family line. Accountants call the rule that separates them the entity principle: the business is treated as a unit apart from the people who own it.
A bookkeeping guide for beginning farmers from ATTRA, a farm information service of the National Center for Appropriate Technology, ties plain records to being able to “see whether the business is profitable”. The FAO’s handbook on farm cost statistics goes further: where a cost also serves the household, “household-related expenses need to be estimated and subtracted from the total estimate in order to avoid artificially inflating farm expenses”.
Isn’t one account just how a family farm works?
It is, and that is why the mixing is part of family farming rather than carelessness. The FAO finds that “more than 90 percent of farms are run by an individual or a family and rely primarily on family labour”, and on those farms one account pays for the diesel and the groceries because one household earns from the land and lives off it. So the shared account is common. What makes it a problem is that the same money pays the farm’s costs and the family’s living, and until the lines are marked you cannot see the farm’s part.
How do you mark each line?
Go down the statement once, line by line, and write farm or family beside each entry. Most lines are obvious: the fertilizer invoice is the farm’s, the pharmacy is the family’s. Many deposits marked farm will be sales, and if you keep a record of every sale, a sheet with the date, quantity, price and buyer of each sale, each of those deposits should match a line on it. The hard lines are the ones that really belong to both. A University of Nebraska Extension guide names farm vehicles, office equipment and business travel as costs that can be legitimate business expenses but “can be used for non-business purposes as well”.
For those lines the mark is a judgment, so write the rule before you start: which side the pickup goes on, and what share of the electricity is the farm’s. With the rule written first, this quarter can be compared with the next. Decided line by line as you go, no two quarters get marked the same way.
What are the three kinds of line?
Every line on a mixed statement is one of three kinds. The first two, clearly farm and clearly family, need no rule. The third, lines that belong to both, needs a rule written in advance, and the lines the rule still cannot settle are the ones you count.
| Kind of line | Examples | How to mark it |
|---|---|---|
| Clearly the farm’s | Inputs, fuel, a repair, a sale of production | Farm, no rule needed |
| Clearly the family’s | Groceries, school, health, a personal purchase | Family, no rule needed |
| Both | The pickup, electricity, the phone, the monthly fee on the shared account | By the share rule written before marking; if the rule cannot settle it, a third mark, and the line goes in the count |
What do you do with the lines you cannot assign?
You do not force them to one side. You give them a third mark and count them. That count, next to the marked statement, is what you end with, and from it you can see how tangled farm and household money are: three unassigned lines out of ninety means the farm’s money is nearly its own, and thirty means farm and household run through one account. There is no right number to reach. It is a reading, like the oil level on a dipstick.
Neither the family lines nor the counted lines are errors. Add up the family lines for each month and write the total at the foot of that month as an owner’s draw, the money the farm paid for the family’s living, so it reads as one withdrawal and not as scattered farm costs. The counted lines are the part of a family farm that really is both, and writing zero there would be false.
How do you keep farm and family apart after counting?
What to do next depends on the count. With a low count, marking the statement each quarter may be enough, because few lines cross. With a high count, open a farm account and a farm card that the family does not use, so the next statement arrives already sorted. A University of Nebraska guide suggests the same step from the family side: “open an account just for family living expenses to keep those expenses separate from business expenses”.
A separate account also makes other checks possible. The cash reconciliation, a monthly check that the farm’s balance matches the bank’s, finally has one account to check. Sorting out which inflows are really revenue gets easier too, since a loan or a sold machine lands in the account looking just like a sale. And from the farm’s balance alone you can work out how many months the farm could keep running if sales stopped. How large the owner’s draw should be, and how much to set aside, is a decision about the family’s money that this article does not cover.
Where to start
One afternoon with three months of statements is enough to end with a marked statement and a count. You need no software and no bookkeeper, only the account the farm already uses and a rule agreed before the marking starts.
The marked statement also comes first when you add a production cycle’s interest and bank fees to its cost, a calculation another article on this site works through step by step: until the lines are marked, the farm’s loan interest and fees sit on the same statement as the family’s charges. The same goes for the site’s other articles on farm finance: each one starts from figures that are the farm’s alone.
The count is also the shortest answer to a bank or a buyer who asks whether the farm’s figures are the farm’s alone. With a low count and a marked statement to show, you can answer yes; with a high one, not yet. Keeping farm and family money apart is one of the first steps in managing a farm as a business: any figure you plan or set a price with has to be the farm’s alone.