Every year, we go through harvest with our grain. Then there comes a harvest season of a different sort — the bookkeeping and the accounting that needs to get caught up to “close the books.”
Unfortunately, some accountants can get backed up like grain terminals in winter. Farm files trickle in until eventually the accountant’s throughput reaches capacity. This bottleneck of bookkeeping and accounting is both cyclical and predictable. It also results in delays in getting financial information to lenders and advisors and it can slow down new financing and opportunities.
The problem starts with farm bookkeeping — but really it starts with opening the mail. It seems farmers receive more mail, online logins and email than anyone.
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Setting up a separate email address for accounts payable can help. So can mapping out office workflows and processes.
Keeping the bookkeeping up to date is one of the most important processes, but first the bills need to be paid. Maintaining a rolling cash-flow forecast can give you piece of mind over your cash position. As well, payables or pay runs can be scheduled at regular intervals to keep the chaos organized. Consider cloud accounting software so stakeholders and advisors can access the books from anywhere.
Bookkeeping usually ranks among the least favourite jobs on the farm, which makes sense. With credit financing in place, and with crops and animals that need attention, the bookkeeping often gets pushed to the winter months.
This might be all right for stable farm operations — tax returns get filed every year, and getting additional financing is never an issue. However, operations that are growing or are in transition or financial distress can benefit by addressing the bookkeeping backlog and reviewing the farm financial horsepower in a few key areas.
Financial Reporting: Traditionally financial reporting has been annual and it hasn’t been timely. Some producers will already be seeding their next crop before their financial statements arrive. This will be a problem with bigger farm balance sheets and more exposure to financial risk each year. Preparing and reviewing bookkeeping throughout the year provides the opportunity for more timely financial reporting. Accounting firms are a great place for bookkeeping training. Or consider hiring a bookkeeper to help keep your financial reporting up to date. Utilizing a spring or summer year-end date will catch your accountant at a less busy time of year. Or consider hiring a fractional contract CFO to help manage your financial reporting.
Financial Planning and Analysis: Most producers prepare income and expense budgets. These are usually on the cash basis and are often adjusted to the $/acre level. However, both cash and accrual accounting should be considered. Accountants prepare accrual accounting net income, but lenders are primarily interested in the cash generated to service debt. The solution or bridge is the statement of cash flow. Preparing this statement requires extra time, so it’s not typically done with most farm’s financial statements. Producers should speak with their accountants about preparing a statement of cash flow. Better business discussions will result.
Taxation: Tax planning and compliance filing, traditionally done by farm accountants, is only increasing in complexity. Now, farmland values and high commodity prices have made tax planning even more important. CPA firms are preferred for compliance filing for their combination of resources and professional standards.
Mergers and Acquisitions: Mergers could include new formal or informal partnerships or joint ventures. There are many areas producers can work together to lower their cost of production. Machinery, land, agronomy, accounting and marketing are some examples. In most cases, this will add time and cost to financial reporting. However, if the same accountant is used, efficiencies can be gained.
Farm and farmland sales are increasing in dollar value. It’s not hard to imagine $10- and $20-million farm sales being normal in a few years. Once you’ve digested that thought, it’ll help to consider the financial horsepower you have in place to evaluate these future opportunities.
Risk Management: Due to inflation, it’s more expensive to farm the same acre every year. Financial and production risk management is more consequential due to the rising cost of production. Grain farmers in Western Canada have the benefit of both government and private sector crop insurance options but cost-benefit must be analyzed.
Winter is a good time to review your farm financial horsepower, especially for operations that are growing, in transition or in financial distress. Administration, bookkeeping and CFO-level support should all be considered.
Craig Macfie, CPA, CA, PAg is a chartered professional accountant providing farm accounting and fractional CFO services through his company Spring CFO. He can be reached at [email protected].
– This article was originally published in the January 2024 issue of Country Guide.
