The new calendar year is usually a reminder that the previous year’s bookkeeping needs to get done. Along with income tax compliance, farm bookkeeping needs to be completed for financial reporting and government programs. I refer to this as the holy trinity of farm accounting. Your single set of accounting books exists in three forms:
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- tax records
- financial reporting
- government programs
Farm operations with up-to-date and accurate financial records are seen as lower-risk clients to lenders. This directly affects risk ratings and loan interest rates. Tax compliance is important because the government has the power to garnish and freeze your bank accounts in extreme situations. And any farm operation that has experienced drought or extreme weather knows how important record-keeping is for access to government programs.
So, if you already know bookkeeping is important, why is it aways delayed?
You’re busy and allergic to office work
You’re the decision maker for most things on the farm including machinery, employees and marketing. Because you wear many hats, bookkeeping doesn’t feel urgent until it’s needed. For example, maybe you’re looking for more financing, or you need to make a decision about a capital purchase. You avoid farm bookkeeping because you’re busy and there’s no one else to manage it.
Farmers and ranchers enjoy working outside with machinery, crops and livestock. Many farmers don’t enjoy bookkeeping or office work and tend to gravitate towards doing the tasks they enjoy. In his book The 6 Types of Working Genius, author Patrick Lencioni describes the work that drains us versus the jobs that energize us. You might pick any task, such as sweeping the shop floor, over dealing with the books.
You avoid farm bookkeeping because it’s not your favourite thing to do.
You didn’t major in accounting
Accounting is an undergraduate degree for a reason. Fortunately, you don’t need an undergrad in accounting to be a good farm bookkeeper or accountant. However, like most things, it requires a time investment and practical experience.
Many producers get stuck on accrual versus cash accounting. Bankers and accountants prefer accrual accounting, while cash accounting is permitted — and often beneficial — for tax reporting. Accrual accounting includes receivables, payables and inventory, while cash accounting records only what has been paid or received.
Bookkeeping and accounting are confusing, so you avoid them.
Bookkeeping software keeps changing
Bookkeepers today (including me) have used everything from pencil-and-paper ledgers to desktop software and now AI-enabled cloud accounting platforms.
Most people don’t enjoy learning new systems. There’s always a learning curve and often some bugs. However, most desktop software is being phased out, which means cloud-based systems are becoming the only viable option.
Change is uncomfortable, so you avoid it.
You’re only using bookkeeping for tax reporting
If you’re only using your books for tax reporting, you’re probably not in a hurry to receive your tax bill.
The problem with this approach is you’re making business decisions based on only gut feel and the balance in your bank account. Up-to-date accrual bookkeeping helps you track profitability.
One of the underrated benefits of accrual accounting is tracking your grain inventory adjustments.
Unlike counting widgets in a warehouse, farm inventory often involves thousands of tonnes of perishable product. Some commodities, such as canola, can even self-combust under the right conditions.
Inventory values are estimates, not exact counts, and that adds complexity. Farm inventory is the biggest risk on the balance sheet, and its valuation can rise or fall overnight. Accurately tracking inventory in your books and records will provide better data to make stronger management decisions in the future.
Your record-keeping is messy
Why are receipts always missing? It’s a combination of your habits and processes. Having digital and paper receipts in several locations isn’t helpful for records management.
James Clear writes in his book Atomic Habits: “You do not rise to the level of your goals. You fall to the level of your systems.”
A new system could be adopting a digital receipt bank like Dext while your new habit could be immediately taking a picture on your phone of any physical receipts you receive.
Is regular bookkeeping and bill payment time scheduled? If not, it’s likely to remain sporadic and chaotic.
Maybe your email inbox is overflowing with payables and becomes unmanageable. That’s a sign accounts payable administration could be delegated to someone else.
In many farm families, money moves back and forth between personal and farm accounts. It’s practical, but it complicates bookkeeping and financial clarity. Untangling those transactions takes intentional planning and discipline.
Without receipts, bookkeeping turns into guesswork — and stress.
A quote attributed to Winston Churchill (and others) says, “Perfection is the enemy of progress.” Start somewhere with your farm bookkeeping. It could be switching to cloud software, investing in training, delegating to someone else on your team or hiring it out.
To paraphrase Clear, you need to standardize before you optimize. You can’t improve bookkeeping processes that don’t already exist.
