“I don’t take an Owner Draw” and other misconceptions of dairy accounting
by Rebecca White
While collecting financial information of farms, I ask what is their owner draw. More often than not, I get one of three responses:
“I don’t take an owner draw”
“I don’t know”
Or even more frequently “Not enough”
Knowing all your expenses including owner draw is important in assessing your business.
What is owner draw?
I think people get owner draw confused with payroll when they don’t receive a pay stub like their employees. The majority of smaller dairies will have off-farm income that they consider what pays for their living expenses because it comes in a form of a paycheck. Often, when I dig deeper I discover that the owner draw tends to come out in bits and pieces: a little for groceries here, a doctor’s appointment there, Christmas gifts last year, etc. If these expenses are not tracked, they can be a bigger drain on your dairy’s profitability than you are aware of.
Whether you start to pull a set amount each month for personal expenses or keep better track of what you spend, either way you may be surprised at the amount. Dairy producers deserve to be paid for their hard work, but taking a draw from the farm willy-nilly can hurt more than help you.
*Remember: You can’t improve what you don’t measure!
With the Penn State Profitability Assessment Dairy Tool, we collect the owner draw amount (if known) and calculate a standard value based on the farm income:
Calculated value of owner`s labor and management (Owner Draw) = 2% of Total Revenue + $25,000.
The calculated number is a good place to start to measure whether or not you are valuing your labor and management accurately. The above equation can be used with multiple owners because it assumes with multiple owners, the total revenue will be greater.