Farm Accounting: 9 Important things to consider

Farming is a unique industry. Whether you run a small or large farm that is livestock or crop, farming runs differently from most businesses. Unlike other industries, farming is completely dependent on nature and its produce. This is just one of the reasons why farming can be different when it comes to farm accounting as well. Here we discuss 9 things farms need to consider when thinking about their accounting.

Keep up to date with government schemes

Farming is a critical industry across the world and in the UK. Locally and nationally produced produce is now preferable. The government wants to support this further to ensure we can produce the resources we need to feed our population. Bearing this in mind, the Government often has subsidies that can help farms.

The Government subsidy schemes change regularly depending on which food items and resources the country is most in demand of. Subsidies are there to help entice farmers to particular types of farming whether this is beef production, cheese, or certain crops.

In the past, once the subsidy is in place, people flocked to be involved. This can end with a surplus of product which drives down the price. Subsidies are now managed much more efficiently to reduce the risk of this happening. However, in doing so, this means the subsidies are changed quickly. From a farm accounting, perspective farmers need to be on top of these changes if they want to benefit.

Having specialist accountants can help you stay on top of all the subsidies and the relevant requirements to help you receive additional funding you may be eligible for. The more you and your accounting team know about Government subsidies, the more you can plan your farming strategy to make the most of them.

Asset management is key- especially when it comes to your land

Farmland is extremely valuable and a major asset for farms. When managed correctly the land will remain productive year after year and shouldn’t depreciate like other assets can. It can even increase in value. However, in order to maintain the land and the productivity, there are many costs that need to be accounted for such as fertiliser, drainage, irrigation, pest control, weed removal, soil pH management, and much more. All of these need consideration when conducting accounts.

Many farmers now have to also take measures towards animal and wildlife conservation, this needs to also be considered.

Having a required budget for the equipment you need, along with planning which varieties of crops to grow and being dependent on the weather is a huge balancing act. However, when done correctly and timed well, your cash flow can remain in a healthy position.

Record change in land use

Farmers are required to change the use of their land occasionally. Whether this is due to a shift in demand or in order to help wildlife conservation. For example, your land may swap from pasture to crop production, forest land may be cleared for livestock or you may be paid by the government to keep some land as part of a carbon capture scheme. Whatever is the cause of the shift, even if it only applies to a small percentage of your land, should be recorded in your accounts and the value of the asset (in this case the land) is adjusted as necessary.

Record stock levels accurately

If you farm livestock there will inevitably be fluctuations in your stock levels. Calving season will obviously boost your numbers, however, there will, unfortunately, be some deaths that occur at some point, usually due to aging or illness. When any of your livestock numbers change you should record this straight away in your accounting software. This is because every animal has value and will impact the figures.

Take depreciation into account

In many countries, the cost of new equipment can often be offset against tax. The value of many assets and equipment will also depreciate over time. This is due to the equipment become older, wear and tear, or becoming obsolete with the introduction of newer technologies. It is important that you have a good grip on the depreciation of your assets as it can have a significant impact on your taxes and accounts. Keep track of all the new equipment you buy and ensure you have factored in the depreciation each year through your accounting system.

Use cloud accounting

Cloud accounting and embracing the internet can benefit farmers in a variety of ways. Not only can it be quicker to access information and have an up-to-date view of your accounts in real-time, but there are also industry-specific resources that farms can use to check trends that can be used to make business decisions on how best to use and run their farm.

Using a cloud-based solution for your accounting also means you can access your information on the go. As long as you have internet access you can access it on your phone or tablet device, which is great when you are a busy farmer.

Record all losses

One of the pitfalls of farming is the reliance on the weather. We know from experience in Britain that it can be extremely unpredictable. All it takes is an unseasonably hot summer or flooding that can be catastrophic to farmers and their land.

If this were to happen it is imperative that you record the loss in your accounts. If you don’t you could end up with an unnecessarily high tax bill. Having well-organised accounts will mean you are in a better place to combat these losses. Using data from previous years, you will be able to paint an accurate picture for the years ahead and amend your strategy accordingly.

Staffing costs

Farming is seasonal and therefore the number of staff can increase dramatically during harvest or lambing times.  Your accounting system will be able to provide you with an accurate view of your cash flow so that you can invest in enough staff at the correct times. Grants are also often available for apprentices or students attending agricultural college. By planning far enough in advance, farmers can benefit from these schemes and help reduce their staffing costs.

Think about hiring an accountant

Whilst it is of course possible to manage accounts yourself, farm accounting can be extremely complex. If you are a small team you may not have the resources to dedicate to running the accounts properly. This is where a specialised accounting with agricultural experience will be invaluable. Although you will have the additional cost of an accountant to consider, they will be able to help you save money in the long run. This is because they will help you run your business as financially efficiently as possible.

As the points above discuss, the way farms need to approach the topic of farm accounting can vary significantly to other businesses. There are many accounting factors that can be complicated and far from straightforward. When it comes to assets, liabilities and revenue, farming can be a lot more complex. If you need help, then a member of our expert team is here to help. With extensive knowledge of farm accounting and the farming industry, we are on hand to help you tackle your farm accounts and provide support throughout the entire process.