Farm Finances Made Simple: How to Read and Use a Profit and Loss Statement
- Joshua Brock
- Oct 14
- 5 min read
This is the fifth in a series of articles expanding on the original, “From Seed to Success: How KPIs Can Transform Your Market Garden”. With each article in the “Farm KPIs” series, we dive deeper into a specific metric (crops, livestock, financial, etc.) by defining what it is, why it’s important, how to track it, and how to put the data into practical use.
The other articles in the series include:
Running a farm takes more than planting seeds and tending animals; it also requires keeping a close eye on the farm finances. For many farmers, one of the most useful financial tools is the Profit and Loss (P&L) statement, also called an income statement.
If you’ve ever felt unsure about what a P&L is, how to make one, or what it’s supposed to tell you, you’re not alone. Let’s break it down in plain language so you can use this tool to better understand your farm’s financial health.
The Topics We'll Cover
Let's take a quick look at the topics we'll be covering in this blog article:
As with all of our articles in the "KPI Series", although we consider this to be detailed and informative, it is not, however, completely exhaustive on the topic. To get a complete picture and understanding of the use and importance of a P&L statement, consult your financial or tax expert.
What Is A Profit and Loss Statement?
A P&L statement is a simple financial report that shows:
Income (revenue): All the money your farm brings in; crop sales, livestock sales, government payments, custom work, etc.
Expenses (costs): What you spend: seed, feed, fertilizer, fuel, repairs, hired labor, loan interest, and more.
Net Profit (or Loss): Income minus expenses. This shows whether your farm made money or lost money in a given time period (usually monthly, quarterly, or annually).
Think of the P&L as a snapshot of whether your farm is operating profitably.
Why Is a P&L Important for Farmers?
Tracks Profitability: You’ll know if you’re truly making money, not just generating cash flow.
Guides Decisions: Helps you decide what enterprises (corn vs. hay, beef vs. dairy, etc.) are paying off.
Supports Financing: Lenders often require a P&L to approve loans.
Simplifies Taxes: Makes it easier to prepare accurate farm tax returns.
Improves Planning: With historical P&Ls, you can compare year over year and spot trends.
Breaking Down the Sections
Revenue (Income)
This includes everything that brings money into the farm:
Crop sales (corn, soybeans, vegetables, fruit, etc.)
Livestock sales (cattle, hogs, poultry, etc.)
Dairy or egg sales
Custom work (such as baling hay for neighbors)
Government subsidies or conservation payments
Tip: List each income source separately so you can see which enterprises are most profitable.
Cost of Goods Sold (COGS)
These are the direct costs of production:
Seed
Fertilizer and chemicals
Feed
Veterinary costs
Bedding
Example: For beef cattle, feed and vet bills are COGS. For grain, seed, and fertilizer are COGS.
Operating Expenses
These are all the other costs of running the farm:
Fuel and oil
Repairs and maintenance
Hired labor and wages
Utilities
Insurance
Office expenses
These aren’t tied to one crop or animal, but they keep the farm running.
Depreciation
Farm equipment, barns, and other assets wear out over time. Instead of expensing them all at once, depreciation spreads their cost over their useful life.
Example: A tractor purchased for $50,000 with a 10-year life would depreciate at about $5,000 per year.
Interest and Taxes
Any loan interest, property taxes, or other financial costs go here.
Net Profit (or Loss)
At the bottom line:
Total Income – Total Expenses = Net Profit (or Loss)
If it’s positive, you made money. If it’s negative, you lost money during that period.
How to Prepare a P&L Statement
You don’t need to be an accountant to make one. Here are the steps:
Gather records – Collect receipts, invoices, bank statements, and sales records.
List income – Record every source of revenue.
List expenses – Group them into COGS, operating expenses, depreciation, and interest/taxes.
Do the math – Subtract expenses from income.
Format clearly – Even a simple spreadsheet works.
How Farmbrite Can Help
Farmbrite’s P&L Statement is automatically generated as our users enter income and expenses into the Accounting section of the software. Farmbrite offers an account-wide Farm Profit and Loss Statement, along with individual ones for fields, crops, equipment, and animals.
How Farmers Can Use a P&L
Evaluate enterprises: Compare the profitability of crops vs. livestock.
Set prices: Know your costs before setting selling prices.
Plan for growth: Decide if you can afford new equipment, land, or livestock.
Monitor debt: Ensure income can cover loan payments.
Spot problems early: A string of losses signals the need to adjust.
Common Mistakes to Avoid
Mixing personal and farm expenses – Keep them separate.
Ignoring small expenses – Fuel, repairs, and supplies add up fast.
Forgetting depreciation – It’s not cash out of pocket, but it matters for profitability.
Not reviewing regularly – An annual P&L is good, but quarterly or monthly ones provide more insight.
Go Forth Boldly on Your Financial Journey
A Profit and Loss statement isn’t just paperwork for the bank or tax preparer; it’s a powerful tool for understanding how your farm really performs. By tracking income and expenses, you’ll see where the money is going, which enterprises are profitable, and whether your operation is sustainable long term.
The more you use your P&L, the more confident you’ll be in making decisions that keep your farm financially healthy. Want help integrating the use of a P&L into your farm? Farmbrite is a farm management software that is farmer made to help you streamline and organize your farm operation and Drop us a line, we’re happy to help you get tracking with your crop and livestock management. And as always, Happy Farming!
Joshua, his wife Jenn, and their dog Rooster live in PA. Joshua is the owner and operator of Hoffman Appalachian Farm, where they grow Certified Naturally Grown hops. Joshua has over twelve years of experience in growing crops, including growing in an organic system. In his spare time, he enjoys trail running, backpacking, and cycling.