During my years with the Alabama Cooperative Extension System, I have met dozens of farmers who seem to think the cheapest accountant or tax preparer is good enough for their needs. While that assumption may be true sometimes, most accountants can be far more helpful to their farm clients if given the opportunity.
In last month’s column, we reviewed the value of farm tax planning. This month, let’s briefly review some examples of high-value accountant work for farm clients in addition to the yearly tax return.
Example 1: Preparing an annual year-end Balance Sheet (also known as a Net Worth Statement) for the farmer.
An annual Balance Sheet tells whether your net worth went up or down during the year. Hopefully, farmers will see their assets grow year by year while keeping their liabilities low enough to be easy to financially manage. An experienced farm accountant can help document your assets and liabilities by asking the right questions and calculating the results of your year-by-year progress.
Example 2: Preparing an annual year-end Profit and Loss Report (also known as an Income Statement). An Income Statement can be prepared for just a single year or a comparison report for several years. If you have an extensive chart of accounts, you can see at a glance how sales of different crops have increased or decreased over the years, and how expenses have varied for each year being compared.
Example 3: Having a complete Depreciation Schedule for your farm’s fixed assets. Most accountants prepare depreciation schedules on an income tax basis. However, depreciation software also allows many different variations of depreciation reports that can be helpful for farm operation planning. For example, while many assets are written off (or expensed) in one year, their useful life may be 5-7-10 years longer. A straight-line depreciation report can be a useful tool to determine a current fair market value report of your assets along with an outside appraisal of your assets.
Example 4: Preparing an annual Cash Flow report can show the farmer where all the money went during the year. This report is usually an eye-opening report of how much money you had at the beginning of the year, then adding your bank deposits for the year from loans, sales or money from savings for a complete source of funds for the year. Then the use of funds section of the report shows where the money was spent for operations, loan repayments and funds put away for future use in savings or CDs to end up with available cash at the end of the year in the farm checking account.
These reports require a significant amount of time for an accountant to prepare and discuss with the farmer client. An accountant’s time costs money, so be prepared to pay a fair price.
Whether you are a beginning small farmer or an established commercial farmer, you need a good working relationship with a qualified farm accountant. When farmers ask me about finding a qualified accountant, I recommend they find an accountant who does at least five farm returns a year. Sometimes they can find a local farm accountant and sometimes they have to go out-of-county to find someone who is a good fit for their operations. A good farm accountant is generally worth the higher fees charged for the valuable advice and services provided.