Grabbing a box full of receipts or a paper ledger and using them to figure out the taxes you owe for farm income is a tedious chore. Nowadays, savvy farmers use computerized programs to keep track of expenses and purchases for different farm products, such as livestock and growing grains, saving time and frustration while getting a better overall view of their farming operation. Bookkeeping software helps you figure out where your farming operation stands, which helps make your farm more profitable in the long-term.
Evaluating Features Needed
Choosing a bookkeeping program starts with identifying what you need it for. For instance, if you raise cattle and grow corn, you need a program that breaks down your farming operation into separate profit and loss areas. If you hire farmhands or a farm manager, your bookkeeping program should include payroll features and tax tables. You may also need farm inventory-tracking features if you want to track the cost effectiveness and depreciation of tractors, combines and other farm equipment. If you want to use the software to balance your books, you need a double-entry accounting feature that records your daily income and expenses as well as debit and credit line items for everything you enter.
A solid farm accounting program generates at least cash flow and income statements, as well as a balance sheet. The information provided by using these tools over a three-year time span helps you calculate how much it costs to grow an acre of corn or raise one cow, helpful in long term planning and for reviewing income and expenses in each category. You also need the option of adding custom tracking categories, referred to as a chart of accounts. Tracking categories are very useful for entering and evaluating data broken down into various types of expenses. For instance, if you raise cattle, your tracking categories might be broken down into acquisition, feed, veterinarian, round-up and transportation-to-market costs.
Quicken and QuickBooks are inexpensive, basic bookkeeping programs to get you started with computerized programs. Check with your university agriculture extension program on how to add farm-related chart of account categories to these programs. Or you can buy an add-on program, such as ManagePLUS, to expand the program’s capability. If you want software that’s developed specifically for farming operations and that provides solid income statements linked to your balance sheet, look into programs such as Farmworks, FarmBiz and Red Wing. Programs geared for small to medium-sized farming operations include Intacct and Netsuite.
Talk to your accountant to find out what information he needs to prepare your quarterly income taxes and paying taxes for farmhands or seasonal workers. Make sure the software you choose provides that information. When setting up your chart of accounts, grab copies of the last few years of your Schedule F tax form, and use those to create your tracking categories. Talk to your software dealer about a program’s flexibility for growth as once you start seeing what these programs are capable of doing, you may want to add in more features that help make your farm operation even tighter.
Nancy Wagner is a marketing strategist and speaker who started writing in 1998. She writes business plans for startups and established companies and teaches marketing and promotional tactics at local workshops. Wagner's business and marketing articles have appeared in "Home Business Journal," "Nation’s Business," "Emerging Business" and "The Mortgage Press," among others. She holds a B.S. from Eastern Illinois University.