Life on a farm seems idyllic, doesn’t it? Yet, as any hard-working farmer will attest, the daily tasks of looking after livestock, growing crops, fixing fences and machinery, and managing the land can be all-consuming. Add the task of accounting to a farmer’s remit, and it gets even busier.
Farm accounting is much more complex than many other industries. Farmers juggle a very unique set of assets, liabilities, costs and revenue; they lack steady cash-flow throughout the year; and their income can be affected by many unpredictable events.
A farmer’s income ebbs and flows with the seasons. During harvest on a cropping farm, for example, a farm may collect $1 million in exchange for its grain. Yet, six months later, they may have to spend another $1 million on sowing the next crop, buying fertilisers and repairing machinery. Planning is key.
Here are 7 tips to consider to make sure that the financial side of your farming business is taken care of.
1) Form close relationships with your accountant and your bank
Don’t try and go it alone. Find an accountant with experience in farm taxes and form a close working relationship with them. You should be able to call them at any time to get their advice – for example, if you need a new tractor, they will be able to advise on whether it’s more viable to lease, get a bank loan or buy outright. If your yields are exceptional, they will show you ways to reduce your tax bill.
Likewise, you should invest time in forming a great relationship with your bank manager. Always keep them informed about what you’re doing and where your finances are at. Most farms run on an overdraft, and it’s a good idea to keep the bank onside if you think you’re going to bounce over your limits.
2) Get the right farm management software
Find out from your accountant how they would like to receive your financial information, and set up your farm management software in a way that’s compatible. This saves them from double-handling your figures and can help you with budgeting and cost control, too.
If you’re not sure which farm management software or accounting software is right for your farming operation, read this article on tips for choosing the right software
3) Keep track of cashflow
On a farm, budgeting is very important. While you wait for your yearly income – which may come at harvest on a grain farm or from shearing the sheep on a station – you must have enough money to pay ongoing costs like wages, repairs, feed or fertilisers. Cashflow isn’t steady, so it need to be managed carefully.
Many farmers use their farm management software to track the budget. Such software is also useful for creating records and comparing year-on-year performance.
4) Consider off-farm investments
Discuss diversification with your accountant. An off-farm investment, such as a unit in the nearest capital city, can be a good strategy to ensure that all of your money isn’t poured into the farm itself. This is particularly true for farmers who don’t intend to pass the farm on to one of their children.
5) Manage your assets
On a farm, the land is the most valuable asset. Managing and maintaining farm land is one of the most important tasks a farmer is charged with. It’s about ensuring that all the land is earning as much income as possible – to do this, it is important to keep good records. A farmer should know the status of all paddocks on the farm and have a long-term plan for each.
6) Keep up to date with office work
Many farmers would rather be out in the paddocks than stuck in an office. But by spending a little time each week on paperwork, it is easier to keep the farm budget and financials on track. This also ensures that you keep on top of expense claiming – farmers can claim a wide range of expenses, from the home office to depreciating equipment.
7) Succession planning
Succession planning can be a very complex issue for farm businesses. Any farmer considering passing the farm on to a child should plan carefully and seek expert assistance to avoid conflict and to ensure that the breakdown of business assets and liabilities is done equitably.