There may be a lot of things that happen on the farm that present challenges, but for a lot of farms, nothing compares to the challenges faced in the back office. While creativity and ingenuity are great assets in the field and barn, the back office requires a different approach. For example, when it comes to applying general accounting principles to an industry that doesn’t necessarily function on other standard business principles, finding a balance between ingenuity and innovation and the right tools, solutions for back office and farm accounting problems are available.
Specific Needs of Farm Accounting
If you look at any college course catalog, and you look in the accounting department, you’ll notice one thing stands out above all others. That’s the need for courses that speak specifically to farming and agricultural accounting. That’s because so much of agricultural accounting deviates from standard business accounting.
Not only are there concerns regarding cash and accrual accounting, especially when it comes to taxes, but farm accounting also demands double entry bookkeeping and dual measurements for accurate accounting. For example, a cost may be accounted for by the acre, but the associated crop revenue may be tracked by the pound. Without the right system in place, these tasks can be both time-consuming and complex.
Top 6 Farm Accounting Problems
Certainly, there are considerable bookkeeping challenges for farmers, ranchers, and farm accountants, but that’s only one part of the challenge. Accounting itself is far more than bookkeeping, it’s overall record keeping, and on a farm that’s quite a lot of information.
- 1. Records and data- acquisition and storage
Accurate accounting, the kind that facilitates smart strategic decisions, requires data. With multiple profit centers and varying production cycles and, potentially, multiple locations, the very process of gathering accurate and timely data can be a struggle. When you factor in the number of hands it takes to collect and properly allocate and enter that data, we’re talking about a time consuming process with the potential for significant human error.
- 2. Complicated taxes
From payroll taxes and auto expenses to conservation and depreciation deductions, there are a lot of tax laws farms and ranches need to pay attention to and take advantage of. This is where having impeccable records can prevent costly penalties and lost opportunities..
- 3. Forecasting
The nature of farming, production cycles, markets, and even weather are unpredictable. That makes future forecasting difficult. However, it’s essential to understand, manage, and predict your cash flow. Knowing when to spend and when to invest is vital. Look at last year’s records (see #1) and, adjusting for changes in prices and volume, you can hopefully predict the lean times and identify where cash flow gaps exist. Similarly, knowing what’s making your profits can help you better prepare for the year to come and strategize on how to optimize those profit centers.
4. Understand family farming
If you’re running a family farm, you know exactly what this means. That means that everyone is pitching in when and where needed. From odd jobs to urgent needs, it can mean long hours and, often, the family part means there’s no compensation. How you work that out with your family is one thing, but how you account for that in your farm business is another. Labor is money and if you’re not properly recognizing its value, that can mean relying more and more upon your family or yourself. If you’re not paying your help, even if it’s you, there’s a need for better accounting.
- 5. Death by a thousand spreadsheets
Because “mainstreet” accounting programs aren’t designed to handle the details and nuance of farm management, most producers rely on an array of home-built, stand-alone spreadsheets to track budgets, inventories, allocations, and analysis. Each solves a short-term problem but often creates long-term headaches for maintenance, especially as time rolls on and business complexity evolves.
- 6. Unreconciled financial statements
One result of this fragmented approach to farm accounting is that year end financial statements are based on externally-prepared forms that are disconnected from the general ledger. Inventory quantities and values are often “plugged” into spreadsheets and work papers, and it’s up to the lending institution to validate their accuracy.
Solving Farm Accounting Problems
They often say the first step to solving a problem is understanding you have one. It’s difficult, sometimes, with the day to day operations to slow down and take a look at something that doesn’t seem urgent, but the impact of ignoring or not prioritizing your bookkeeping and accounting practices can be significant.
With existing challenges and no system in place, it’s pretty easy to see how something that should be so fundamental to the health of your farm business can get beyond your reach. That’s why the best tool within your reach is farm ERP software which offers a broad ranging and inclusive management system for your farm and farm accounting.
Farm ERP software can revolutionize how you view your operations and understand how intricately they’re connected to your finances and accounting. ERP software collects your operational data in one spot, enabling you to get the reports you need, when you need them, and strategize for operational success. It can also:
- Improve your resource management and utilization- As noted above, forecasting is vital. Knowing where, how, and when resources are in demand and what they cost is an essential part of doing that successfully. ERP software allows you to collect that data directly from those cost and profit centers and aggregate it in a centralized location for analysis.
- Streamline your supply chain and vendor management- With inventories all in one place and the ability to track, monitor trends, and forecast future usage, you can improve not just the supply chain but communication with important vendors
- Integrate your accounting and management records- Accurate and precise record keeping is essential to your accounting and bookkeeping as well as your forecasting. Having it all in one place enhances timely, quality decisions. No more digging through files or moving between multiple programs. Your data is verifiable, trackable, and easily accessible.
- Connect payroll information to cost and profit centers- Proper allocation of labor to cost and profit centers is key to understanding your true value of farm activities contributing to your cost of production for each product you grow.
ERP software is about more than accounting, it’s about using all the data you have at your disposal to not only make the best business decisions you can but to also ensure you’re streamlining and optimizing farm operations. It’s one solution for your farm and one solution that addresses most of the common challenges faced by agricultural accountants.
If you’re ready to take a look at farm ERP software designed by farmers for farmers, get in touch with the FBS Systems team today. We can help bring the barn and field into the back office and make the back office less complicated.