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Run Your Farm or Ranch as a Cash Business (Eventually) October 13, 2021

By Shawn Pike, Rights to Water EngineeringBermad irrigation

I was a bureaucrat for 30 years, then retired and started a small engineering business. What did I know about business? Very little. In fact, knowing how much money I had for expenses was impossible. I lost sleep and tried to come up with ways to track balances, outstanding checks, outstanding invoices, and so on. I knew I had just received $22,000 in invoices, so why did I have only $622 in my checking account? It was a nightmare.       ConterraA good friend told me about a book called Profit First (see it on Amazon, etc.). With my friend Scott’s help and coaching, I put into practice what I learned, and now my heart doesn’t race when I think about money and my wife is a lot happier too. How is that possible?

First, I set up free business checking accounts with a local bank who wouldn’t stick me for monthly fees or require minimum balances. That wasn’t possible with the big banks – I checked.  Why checking accounts? Savings accounts have a limit on how many transfers can be made in or out monthly, then each transaction costs. With checking accounts, I can do 100 transfers between my accounts without any fees.

Next, I created five accounts:

  1. Income
  2. Profit
  3. Tax
  4. Owner’s Compensation
  5. Operating Expenses

Then I used those accounts to run my business. Everything came into Income, five percent went to profit, 15 percent went to taxes, 25 percent went to owner’s compensation, and 55 percent went to operating expenses.Technoflo

Most importantly, I didn’t spend money unless I had the cash in operating expenses. That taught me to be cheaper about what I spent money on. I thought I needed $25,000 in tools and a $20,000 truck to replace the old S-10 I was driving. Guess what? I didn’t need those right away.  I had to be creative in how to do my work and buy just what I needed to get the jobs done.All Water Rights

By putting 5percent into Profit, I guaranteed that my business is profitable every month. The author of the book strongly suggests putting the Profit and Tax accounts at a separate bank to make it harder to get the money out, to remove temptation to use that money for expenses. I taught myself not to see those accounts until it was time to use profit on non-business things I needed or wanted, and time to pay taxes.

What about when I had to buy something big for a job? Friends taught me to be brave and ask for deposits. If you have a good reputation and you’re reliable, people understand you can’t finance everything yourself.

My wife has her accounting degree, and for most of our marriage she kept us from going broke because I like to spend money. She did not trust that this method of bookkeeping would work.

Now, she’s a fan! We get paid, we have reliable fun money, taxes are pre-paid with the IRS, and I don’t spend more than I have. She trusts me with money, has for the last three years, and she was exactly right to mistrust me with finances for the 34 years before that.

Over time, I adjusted those percentages and added accounts. Giving is important to us, so I made an account and give a set percentage from all income. I have ongoing data download and filing work for clients, so the checks go into an account that I draw from just for those expenses. I have a lot of items that are re-sold – sheet metal, pipe, lumber, complex connectors, replacement data loggers – so I put money into Cost of Goods for those. I hired contractors for some of the work, so I keep a separate Contractor/Payroll account for those expenses. I had to get a truck with 4WD and more hauling capacity, so I saved a down payment and now I make payments from a Truck account.

Then I incorporated.  How did that change things? Not one bit, I just had to get new checking accounts in the name of the corporation.

You might say, it just doesn’t work that way in farming and ranching. I guarantee you, there are farmers and ranchers using this method. It may take time, several years to convert over, but it can be done.

What would you or I rather do, sweat the finances, get ulcers, and have marital problems?  Or go a little slower, convert to using cash, and have peace of mind, even some joy that things are going well? Door number two seems like the wise option to me.

Getting your finances together does not make irrigation water; I wish it did. It does make life easier for when there is more water and income is hopefully restored for you in the future.Shawn Pike worked for the California Department of Water Resource and was Water Master of a number of Northern California streams before founding Rights to Water Engineering in Los Molinos, California. You can contact him at: https://allwaterrights.com 530/526-0134  RightsToWaterEng1@gmail.com

DISCLAIMER OF RESPONSIBILITY; Waterwrights strives to provide clients with the most complete, up-to-date, and accurate information available. Nevertheless, Waterwrights does not serve as a guarantor of the accuracy or completeness of the information provided, and specifically disclaims any and all responsibility for information that is not accurate, up-to-date, or complete. Waterwrights’ clients therefore rely on the accuracy, completeness and timeliness of information from Waterwrights entirely at their own risk. The opinions expressed in this report are those of the author and do not represent any advertisers or third parties.

ALL RIGHTS RESERVED.  Copyright 2021 by WaterWrights.net/DAW

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