As farmers tighten their belts and prepare for the year ahead, it’s important to know exactly where every nickel, dime—and potential liability—might be. Having good accounting management procedures in place is a sure way to do this, as Paul Neiffer, CPA with CliftonLarsonAllen LLC and writer of “The Farm CPA” blog explains. In tight times, it’s especially important to have excellent accounting records so you know whether you’re making money or losing it.
Here are five tips he recommends for farmers who want to create or improve their accounting management plan.
- Start small. When it comes to good accounting management practices, take baby steps. Don’t try to tie down everything all at once. Figure out what is most important in your operation—which may also be the area you also are most concerned about—and focus on that area first, whether that's equipment cost per acre or labor costs.
“Remember that farming is a three-year process in a lot of cases,” Neiffer says. It will take time before you can start benchmarking, so take it one area at a time. This will reduce stress, minimize mistakes and ensure you’ll actually get it all done. Remember, when you try to do everything, usually nothing gets done.
- Evaluate your farm sector by sector. Key in on the specific components of your farm operation, for example: equipment, labor/management, inputs, etc. They are all important aspects of your farm, but your management style will usually focus on one area more than the others. By looking at items individually, you can better evaluate each area.
- Consider software in lieu of Excel spreadsheets. While many farmers have multiple spreadsheets detailing the financials of their business, Neiffer says that's really not the best option. The challenges with Excel spreadsheets, Neiffer explains, is that they are easy to set up—and are just as easy for you to make and miss your accounting mistakes in all those cells. There are several options when it comes to selecting a software package to fit your specific management needs. To start, decide your focus—whether you’re more focused on the financial side or the management side—and select a software package to match.
- Keep good records. Neiffer repeats this mantra over and over again. Too often, end-of-year issues arise from poorly kept records. By maintaining good records and staying organized throughout the year, many issues—which could potentially have a significant financial impact—could be averted. Plus, it will ease tax preparation stress at the end of the year.
“It’s even more important now for farmers to have very good accounting records,” Neiffer says. When margins are thin, you need to know exactly where you stand financially.
- Real-time profitability. Technological advances and the plethora of software available allow today's farmers to know their numbers almost in real time. “We can start getting to that point where we almost have real-time profitability,” Nieffer says. By utilizing cloud-based software, farmers can see immediately how different financial decisions—such as hedging a corn or soybean crop—will affect their bottom line.
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