Every farming business is unique in the way that it’s operated. Farming businesses that rely heavily on live produce like crops or livestock versus other types of farming businesses like nursery operations and herbs, all have its differences that make the need for proper accounting advice that much more important. Farm accounting can be much more complex than any other business type, especially when it comes to its assets, liabilities, costs, and revenue. As well, geographical location matters, as farming is a regulated and subsidized industry to work in. With all these factors in mind when running a farm business, it’s clear that things are not so straightforward. That’s where accounting advice comes in: here are 4 key pieces of advice to be aware of if you currently run a farming business. Accounting Advice #1: Your Land is Your Asset Running any business consists of expenses. For farming businesses, however, it’s a good idea to think of your land as your asset. Properly managing agricultural land won’t depreciate. In fact, it might even go up in value. Mismanaged land, on the other hand, can take years and years of careful nurturing to bring it back to its original state of productivity. Especially if the land has become highly acidic or drained of nutrients due to overfarming in the past. Farming business owners should consider the cost of maintaining your land, including: Drainage: Soil that doesn’t drain well will rot crops and harm livestock. Improving drainage is a costly process. Fertilizer: Purchasing this expense is unavoidable, especially if you want to keep your fields productive. Irrigation: Crops won’t grow without water and is an expense that farmers can’t live without. Keep in mind that irrigation can be much more costly if you live in a country that has a tendency for drought (i.e. Southern California, Utah, Arizona, etc.) Soil pH management: Varying plants need varying pH levels to survive (or thrive). Research and analysis into the correct nutrients will be key to help maintain soil pH levels. Weed removal: Spraying or manually extracting weed is an ongoing expense to consider. Pest control: Growing any types of crops will have you encountering pests. This will be another ongoing battle, especially as pests develop resistance. Accounting Advice #2: Keep track of government subsidy schemes Like we said earlier, the farming industry is a closely regulated and subsidized industry. This is because the farming industry creates the resources a country and its citizens need to keep its population fed and alive. In 2017 alone, agriculture, food, and related industries contributed $1.053 trillion to U.S. gross domestic product (GDP), a 5.4-percent share, according to USDA. For this reason, many governments offer subsidies to farming businesses to assist them during the lean years to either make certain types of farming more appealing and to ensure that the country never runs out of food. These subsidies could change year-to-year and depending on the country farm businesses operate in. For example, one year there might be a large subsidy on dairy, while the next year may focus on beef subsidies. Due to these changes, it is paramount that farm business owners keep track of government subsidy schemes—and particularly so if they’re done through direct payments. By keeping abreast of subsidy schemes, farmers can better plan for it which in turn saves costs. Accounting Advice #3: Get to know depreciation (for your equipment) The cost of new equipment can be used to offset tax. However, new items will eventually become old and depreciate over time, either through wear and tear or becoming fully obsolete. Getting to know how depreciation works is important because the value of your equipment will also affect your tax bill. Depreciation can occur on your farm equipment, including: Computer equipment Machine tools, hand tools, and repair equipment Tractors, trucks, harvesting equipment, and other farm machinery By making a habit of recording these expenses (and what you sell), you can better account for its depreciation each year. Pro tip: You can easily log business expenses in accounting software to keep track of what types of equipment you have and its depreciation. Kashoo does it one step better by pulling these transactions for you. With our latest Kashoo 2.0 release, you can now sync your farm business bank account to Kashoo and let the software pull a year’s worth of data for you. Easily categorize your expenses from the Smart Inbox and you’re good to go in seconds. If you’re unsure if you know how to set up Kashoo, we offer free workshops to get started, including the Getting Started with Kashoo 2.0 (our most popular one!). Accounting Advice #4: Know your stock If you run a farming business that relies on livestock, keeping track of these animals matter when doing your farm accounting. This could be how many, what type, breed, and age. Due to hot summers and possibly even colder winters, livestock numbers will change. Good record-keeping will enable farmers to better predict price changes from expenditures and sales records from previous years, which in turn, can be used to plan for future years. Accounting Advice #5: Hire an accountant if you need the help Lastly, hiring an accountant might be a good strategy – especially if you manage a large, complex farming business. A small to medium-sized family-run farm may not need one, and you might even get away with designating a member of the family to manage the books. Pro tip: If you do run a complex farming business and hire an accountant, you can add your accountant as a user to read and pull financial reports straight from the software. This makes the process of doing your books much simpler and this process can be done in seconds. Conclusion: Do your accounting for the way you run your farm Running a farming business is no easy. From government regulations and subsidies and tracking livestock to navigating depreciation and the financial complexities of doing your books. By being aware of the aforementioned accounting advice, you should be much more equipped to managing your farm accounting in no time. Try TrulySmall Accounting’s free 14-day trial today to see how our smart accounting tool can help make farm accounting more efficient.
