You've heard us say it before: It's critical for a farm leader to stay on top of their operation's finances—because accurate, up-to-date numbers are a valuable and irreplaceable tool for planning the crop year and making adjustments to that plan as the year progresses. To that end, we present a checklist of ten farm bookkeeping best practices, reprinted from our Smart Series newsletter.
1. Embrace technology
There are a number of user-friendly accounting software packages that can help you stay organized. Work with an accounting-savvy consultant to help determine which package is the best fit for your farm.
2. Maintain separate, external backup of your accounting information
Unfortunately, computer viruses and technology malfunctions can happen. We recommend that you back up your information quarterly on a separate external drive. Your backup drive should be kept in a separate building from your computer—maybe even in a bank safety deposit box.
3. Create a routine to keep everyone in the loop
We recommend setting up a routine where at a regular interval—say, once a week or every two weeks—the farm bookkeeper prints a report showing all the invoices that could be paid. Then, give the list to the person who makes buying decisions—maybe it’s a business partner, manager or spouse. Ask them to confirm the purchases and to advise which invoices should be paid first. This process helps keep everyone on the same page about farm purchases.
4. Track your financing
Put a system in place to make sure everyone who needs to know about any new financing hears about it—in particular, your bookkeeper. This is very important if your books are on a cash basis. Here’s why: if you buy a piece of equipment on a loan that doesn’t require a downpayment, the bookkeeper may not necessarily know about the purchase until the first payment is due, which could skew your books.
5. Set a date to close your books each year
We recommend setting a closing date—using your bookkeeping software—that will go into effect when the books are complete for the year. Most software programs offer this in one way or another—by simply placing password-protection between a certain range of dates. This helps protect you from making a simple data entry mistake or changing data from a previous year.
6. Use your accounting software to print checks
If you aren’t yet using the capability of your software to do this, you’ll end up having to frequently recreate information based on your bank statements. We recommend you print your checks at least once a month—if not more frequently—to keep things up to date.
7. Maintain copies of your bank deposit statements
Otherwise, it’s tough to remember exactly where the check came from, and what it was for—especially small dollar amounts. Having a copy allows you to record the income correctly in your books. You’ll never have to guess where it came from later.
8. Make notes to yourself
If you save your invoices as you pay them, write the check number, date, and amount paid on the invoice itself. This basic practice allows you to go back and connect the dots as to why you paid that vendor, at that particular time.
9. Get more specific
If your income statement report isn’t providing the information you want, it’s time to get more detailed. For example, maybe it shows a single line account called "grain sales." But you may want to see it broken out by each type of commodity on your farm. You can create sub-levels called "corn sales" and "soybean sales" within that grain sales account. It’s a matter of figuring out what level of detail you’d like and then changing your chart of accounts to reflect that.
10. Maintain an accurate equipment list
We recommend getting an outside party to do an independent equipment appraisal. The third party documents all of your equipment and determines the fair market value of each piece. Once every five years may be enough for this type of thorough inspection—or more frequently if your operation has a lot of equipment. This gives you an accurate listing and provides good information when selling or trading a piece of equipment.
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