Now let's broaden our focus to an “even better accounting system” — one that provides the answer to one more critical management question needed to determine performance of a ranch business: What is the source of my business and family funds, and how are the funds used?

Since cash flow is all-critical in any successful ranch business, this report summarizes all sources and expenditures of cash — both business and family — during the business year. Table 6 presents the source and use of funds for my example ranch.

Cash can flow into a ranch from several sources. A ranch can start the year with a cash balance, and generate more cash through the year via the sale of production items or capital assets. Money can be borrowed, net off-farm income can be generated, and gifts and inheritance can be received. All these contribute to the source of funds. In this example ranch, the cash inflows total $456,830.

Cash also flows out of a ranch via operating expenses, payment of debt principal, capital purchases, family-living draw, and gifts and inheritance given. In this example ranch, total cash outflow was $417,786, generating a net-cash-inflow of $39,044.

The final adjustment is for income and Social Security taxes paid (this year) and household purchases. Thus, the calculated ending-cash balance for my example ranch is $31,544.

As ranchers face down-trending calf prices driven by higher corn prices and stage in the current beef price cycle, the three accounting summary tables — Tables 1, 3 and 6 — will become all-critical. These three tables will help you measure and assist in managing your ranch's financial success for the rest of this decade.

Harlan Hughes is a North Dakota State University professor emeritus. He lives in Laramie, WY. Reach him at 701-238-9607 or harlan.hughes@gte.net.