Managing: Help With Accounting
Economist David Kohl has a striking number in this issue’s Q&A. An example of how things are better since the credit crisis of the 1980s is that as many as 50,000 operations now have good financial records, he says.
That’s impressive, but not so much, if you consider how many farms our nation has. The 2012 Census of Agriculture found 2.1 million. Most are small. Yet, even the number of commercial-scale operations may exceed Kohl’s count of farms with good records. There are about 168,000. (That’s from a 2013 USDA Economic Research Service update of farm types, not the Census. ERS uses gross cash farm income of $350,000 as a threshold for midsize or large farms.)
It’s tempting to assume that only farms at the smaller end of that commercial scale need the help. That’s probably wrong.
For 13 years, Idaho farmer and rancher Dick Wittman has taught managerial accounting (MA) at TEPAP (The Executive Program for Agricultural Producers). MA is the most useful and accurate way to keep and to analyze records, and TEPAP attracts some of the nation’s best managers. Yet, Wittman says, in a questionnaire he gives his class, fewer than 25% say they analyze the ratios generated by such record keeping. In one session, Wittman asked a question on how to convert the cash accounting that’s used for taxes to an accrual-adjusted income statement. “In a class of 100 people, only seven got the right answer,” he says.
Clearly, a big chunk of production agriculture needs help, especially with margins tight to nonexistent. For those of you already using an agricultural CPA firm or farm business association, congratulations! You’re in a savvy minority. For many others, it’s time to call in that mild-mannered superhero: the accountant or farm management specialist.
Wittman favors at least a yearly adjustment to an accrual income statement. Among other things, it shows your real costs, a key first step to better marketing and management. Study the ratios made from the statement.
“If you aren’t doing it, you should have your adviser do it every year,” he says. “It’s not optional to not know this anymore.”
You don’t have an adviser? To find one, start by first visiting the website of the Farm Financial Standards Council, the group that evolved from the work of Kohl and others in the 1980s. Wittman is a past president.
You can’t go wrong picking from accounting firms and farm business associations listed as the council’s executive committee or its partners.
Sound advice isn’t limited to that group, of course. Yet, any adviser should be able to do more than prepare taxes, says the council’s current president, Jim Kelm, with Dairy Business Consulting in Red Wing, Minnesota. He or she should understand agriculture, Kelm says. “That’s more critical in having an adviser who understands farm management and who can interpret ratios.”
When considering a CPA, ask for a sample financial statement, suggests Jeff Bushey, managing partner at Nietzke & Faupel, PC, in Pigeon, Michigan, and a member of the council’s executive committee.