Farms face factors that many other businesses don’t. Not only are they regulated and subsidized, but they’re also heavily dependent on weather, with changes in rainfall or temperature meaning the difference between profit and loss. Accounting for these factors is not straightforward. In managing the finances for every aspect of your farm’s operation, here are five important points to bear in mind:
Your land is an asset — And it shouldn’t depreciate — it may even go up in value. But mismanaged land can take many years of careful nurturing to return it to productivity, especially if it’s become highly acidic or drained of nutrients due to overfarming in the past. The cost of your land includes:
- Soil pH management.
- Weed removal.
- Pest control.
If looked after well, good quality land should remain productive year after year. Keeping your land in good condition is money well spent. Just remember to account for all these expenses.
Stay up to date with government subsidy schemes — Make sure you keep track of subsidies and account for them, especially if they’re made as direct payments. Knowing as much as possible about government subsidies can help you plan your farming strategy so you can make the most of them.
Adjust your farm accounting calendar to suit the government’s — Trying to keep a tally of the animals on your farm might seem like a no-brainer, but you need to be within the government’s definition of livestock ages — lambs may be born early, late or out of season. Go with the government’s definition.
Record changes in land use — As we shift to a more vegetarian society, you may give your pasture over to cereal, fruit or vegetable production. In this sense, farming is like other businesses in its need to keep up with trends. If your use of land changes, even if it’s just a few fields, be sure to record it in your accounts. Make sure land value — an asset — is adjusted if necessary and that you account for the sale of any stock that was on the land previously. If you’re moving to a livestock farming model, be sure to record the cost of buying stock. By recording changes as they happen, you’ll keep your business accounts up to date.
Understand depreciation — The cost of new equipment can be offset against tax. Its value depreciates over time as it becomes older, wears out or is made obsolete by newer technology. Make sure you understand the rules for depreciation because the value of your equipment will affect your tax bill.
- Tractors, trucks, harvesting equipment and other farm machinery — New technology is moving fast in this area, making older machinery less valuable.
- Computer equipment — Increasingly essential for managing a farm efficiently, computers depreciate faster than almost any other type of equipment.
- Hand tools, machine tools and repair equipment — Often long-lasting with a long depreciation tail, though low-quality items may fail sooner and be a poor investment.
These are just a few basics of what is a complicated financial system. Be sure to keep in close touch with us, so we can help you make sure you’re not leaving any money on the table. If you have any questions please contact Vrakas at 262.797.0400 and we will connect you with one of our professionals.