5 Things to Consider with Farm Accounting
Farming is a completely different business to any other and is more complex when it comes to assets, liabilities, costs and revenue.
Here’s 5 things to consider with farm accounting.
1. Land is an asset
If your agricultural land is properly managed it shouldn’t depreciate in value, in fact it might even go up. However, mismanaged land can take many years to return to productivity, especially if the land has become highly acidic or is nutrient poor. Whatever it costs to keep the land in good condition is money well spent. The cost of maintaining the land should always be accounted for including fertiliser, irrigation, drainage, soil pH management, weed removal and pest control.
2. Know your stock
Most farmers will know how many animals they have - of what type, breed and age - to within a small margin. However, animals breed and die, so the number will not remain static. The old saying, “where there is livestock, there is also deadstock” still applies, especially during cold winters and lambing or calving season.
Your stock numbers will change over time and it's important to record these changes in your accounting software. Every head has a value, and that value should be recorded.
3. Make use of the internet and the cloud
Most farmers have some form of internet connection these days. It's not always as fast as you’d like – rural life has its downsides. Some uses for the internet, in general, and the cloud, in particular, include:
· Checking stock prices and trends: Keeping up to date with these numbers can help farmers decide how best to utilise their land.
· Accessing kill sheets, tracking milk solid prices, etc: Usually faster and easier than getting this information by mail or word-of-mouth.
· Long-range and short-range weather forecasting: Vital, required knowledge for just about every type of farm.
· Using cloud apps: These new tools offer much faster access to information, accounting tools, resources and bank accounts.
· Cloud based accounting: Keep up to date with your cashflow.
4. Depreciation
The cost of new equipment can be offset against tax, using depreciation. The value will depreciate over time as it becomes older, wears out, or is made obsolete by newer technology. You can depreciate:
· Tractors, trucks, harvesting equipment and other farm machinery.
· Computer equipment.
· Hand tools, machine tools, and repair equipment.
Keep track of what you buy and account for its depreciation each year.
5. Account for loss
Farming is dependent on the weather, and sometimes the weather wreaks havoc. A hot, dry summer might be great for wine growers but it can be catastrophic for dairy farmers. Unseasonal storms can destroy entire crops and unexpected rain can leave hay rotting in the fields.
It's important to record any losses in your accounts, to reduce your overall tax bill. You don’t want to be taxed on something that's been destroyed, or on a profit that you haven't made.
To discuss all your account matters please call us on 09 438 1001
