Ben Brookes ACCA provides insight on the importance of keeping good farm records and the benefits of making the switch to digital accounts management.
During times of political and economic uncertainty it’s important to have a firm grip on the things that you can control!
To manage your farming operations effectively requires meticulous, timely record keeping and financial analysis. This then helps to inform your decision making regarding future investment options.
In this blog you'll find:
An introduction to record keeping
What financial record keeping is and why it's important
The need for an approraite system
The benefits of going digital
Why are accounting records important for farming?
Record keeping for farms can be a complicated process but it's essential to the efficient management of agricultural businesses. Keeping good, accurate records is key in making informed decisions and planning for the future. Farm business accounting software can be a great solution that eases some of the burden, but choosing the best option fr you individual needs is key.
Gary turner, the Managing Director and Co-founder of Xero, said it best when he stated, "Farming is unlike any other type of business. There are few others that rely on living produce, from crops to livestock, to be successful. This makes farm accounting more comples then other businesses when it comes to assets, liabilities, costs and revenue."
More than ever farmers need to be able to:
Project sales and expected expenses given historical numbers
Understand everything they own and owe
Key to achieving this is establishing best practices with regards to maintaining accurate records and working with your accountant. At a time where the future looks somewhat clouded, it’s vital to get the most from your systems and business relationships.
What is financial record keeping and why it's important
Financial records are evidence of the financial transactions and interactions of the farm. In essence they prove your income, expenses, assets, and liabilities.
Think of things such as:
Inventories (land, buildings, machinery, equipment, and livestock)
Money owed by you to creditors (accounts payable)
Money owed to you by debtors (accounts receivable)
Balances on outstanding loans
This all means that keeping and analysing financial records is vital to managing your farming business and operations effectively. It ensures you can monitor performance and your cash position accurately. You can then understand your current position, gauge where you need to get to, and plan the investment and items that need to be actioned to get you there.
The need for a system
To achieve any of this first you need a record keeping system that can work within your daily tasks and help provide you with the intelligence you need, when you need it. Someone needs to be in charge of this specifically and they need to post the transactions regularly.
A double-entry bookkeeping system provides the most detailed accounting of activities on the farm. On the surface this appears quite simple, a case of keeping a tab of all transactions and remembering to pay your tax and national insurance.
Dig deeper and it’s clear you need to know exactly what you’re doing in terms of when to record certain things, how they should be treated, and why. In essence it’s anything but simple, and very time consuming in cases where there are a lot of transactions.
That’s why many farmers will rely on an accountant. However, the relationship is only as good as the information you supply them and needs to be done on a regular, timely basis. Achieve this and your accountant can report back to you on financial performance whilst ensuring you're making use of various allowable expenses and investment tax breaks.
It’s also crucial to helping your accountant keep you compliant. This is done through enabling them to record your income accurately by supplying them with all the information they need when required, for filing your tax return, on time. This then ensures you avoid any investigations and fines while not paying any more than you legally should.
HM Revenue & Customs set up in 2019 a new web based system so that the tax information of self employed individuals and businesses are stored in one place online.
All organisations with a turnover above the VAT threshold of £85,000 have to:
Update their information online
Submit their income and expenditure figures quartely, or monthly
Pay taxes due based on said numbers under self assessment.
In essence this means from a tax perspective it’s never been more important to work closely with your accountant to prevent getting behind on bookkeeping. Shifting to a digital, software system makes entering income and expenses much easier as well.
How will the use of digital accounting software impact farming businesses?
Sure there is the cost of purchasing software and learning to use it however, this is more than offset by the business benefits. By working closely with an advisor, much of the process side of accounting can be eliminated achieving significant efficiencies.
It means with some training, you can access reports and key performance indicators at the press of a button, potentially on any device, in any location, at any time. This helps improve productivity by making the approach to accounting leaner. Being based in the cloud meansthe days of manual back ups and requiring disaster recovery plans are consigned to history.
Furthermore many online accounting software products can link to your bank account. Consequently your accounts can be updated and reconciled to your bank statements. Through bank feeds, your banking transactions are uploaded and update your accounts as they happen.
It’s clear to see why shifting to the cloud is the best option. Some farmers will of course have good spreadsheet based systems that they may not want to shift from. That’s entirely understandable and it’s still perfectly feasible to run such a system and stay MTD compliant. If this is the case for you, then again the key is to work closely with your accountant so that as you update the spreadsheet they can manage the cloud software side of things.
The content of this post is up to date and relevant as at 10/02/2020.
Please be aware that information provided by this blog is subject to regular legal and regulatory change. We recommend that you do not take any information held within our website or guides (eBooks) as a definitive guide to the law on the relevant matter being discussed. We suggest your course of action should be to seek legal or professional advice where necessary rather than relying on the content supplied by the author(s) of this blog.