Do you really need to update your farms’ accounting system?
Okay, so – what is a farms’ accounting system? The main component is your cashbook; but your accounting system goes beyond that. It includes your chart of accounts (the list of places you record your income, expenses, and other transactions), the way you store and access your invoices, your relationship with your accountant, and even the approach you take to entering your transactions. Do you put it off until the BAS is (over)due, then spend a frantic and frustrated couple of days in the office getting it up to date? Process it all monthly? Outsource to a bookkeeper? Code transactions as they come in? All these components have an impact on the quality, timeliness, and ease of entering and accessing your business data. Together, they make up your accounting system.
Do you need to update yours? That depends!
Decide what you want
Before you can decide if you need to update your systems, it’s essential to think about what is important to you. Is it reducing the time and effort you need to put into your bookwork? Or do you want to use the data to understand your business better and make decisions moving forward? Is it important to know where your business stands from a cashflow perspective at any given time? Perhaps it’s all the above. Plus a few more! Dream big here. If you’ve been using the same system for more than a few years, you might not know what else is available, so don’t shortchange yourself by limiting your expectations from the get-go.
Review what you’ve got
Once you know what you want from your ideal accounting system, you can analyse your current system to see where it is working for you and where it is lacking. Remember that ”We’ve always done it this way/used this system/Dad would hate it if we changed/I don’t like new things” does not lead to the best, most efficient way of doing things. And when we’re choosing between new and old technologies it’s important to determine if we’re choosing between a 2022 Landcruiser and a 2015 Landcruiser, or Landcruiser and a horse and buggy.
Why update?
There can be many reasons to incur the cost and spend the time updating your accounting system. It is an investment, and you want to make sure it’s a worthwhile one. Things to consider can include:
Ease of use – Cashbooks have traditionally been rigid to use and hard to learn. Once you learnt how to use ‘your’ system, there was a big inertia to stay with that system and the process of learning a new system was so daunting and time consuming. I can happily report that that is no longer the case. Xero, for example, aims to be intuitive and easy to use for non-accountants.
Automation – One of the biggest technological advances in accounting systems in recent times is the ability to automate. Automation, when set up correctly, saves time and reduces errors. You are now able to have invoices directly emailed to your cashbook and store them with the transactions you need. Not only that, the technology for your cashbook to ‘read’ invoices and start to enter them in your system is already available and improving constantly. Think of the time and efficiency savings that could give you!
Access to records – I recently spoke to one farmer who was splitting his time between on farm and a house a few hours away. When he was in town and wanted to review an invoice, he would need to call his farm office manager, interrupt her work, and get her to find the invoice, scan it in, and email it to him. We discussed storing the invoices in the cloud along with his accounting data, so they could be easily accessed from anywhere at any time.
The right advice – for you! While accessing the invoices in the cloud appeared to solve the problem above, I delved a little deeper into what he was trying to achieve. We worked out that all he really wanted was to look at the average price they’d paid per head for cattle over the last few years. I was able to make a couple of suggestions to the data that was initially entered into their cashbook so that he could quickly download and manipulate the data he needed. If you’re not being asked what you need to make your life easier, there’s a flaw in your accounting system.
Meaningful data – If you’re using an inherited chart of accounts, chances are it isn’t designed to tell you what you want to know about your farming business. And if you’re only doing your books at the end of a quarter for the purposes of completing your BAS, you’re making your life harder, your data less accurate and your decisions less informed than they could be. Are you budgeting? Are you completing actual to budget reports and reviewing these to see what caused any variations? Is your accounting system telling you a story about what is happening on your farm?
Real time accounting – a big leap forward for farmers has been access to real time accounting data. When all the other components of your accounting system are working smoothly, your accounting system can reflect your actual cashflow and wealth position in real time (dependent on how long your bank transactions take to flow through, so usually to within 24 hours). This gives us an amazing ability to increase the accuracy of our forecasting, and make quick decisions based on accurate data, rather than relying on estimates or having to hold up the decision-making process to get the books up to date.
It is way too common in farming to focus on improving our systems and processes in the paddock but neglecting what’s happening in the office. Budgets for the bank; BAS for the ATO and job’s right. By reviewing, changing, and improving farming accounting systems, we’re saving time, improving efficiency, constantly learning, growing, and improving the business of farming. Our farms. Our businesses. Why wouldn’t you?
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