How Inadequate Farm Accounting Can Cause Added Stress

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Farm Financial StressToday’s financial landscape is more difficult to navigate than ever before. Complete and timely financial records are a necessity, especially in today’s agriculture sector. It is no longer sufficient to base the belief that a farm business is financially sound on the mere fact that it can get approved for an operating loan. Time and time again, farms that have operated this way in the past are no longer able to get financing and are realizing—sometimes too late—that the bank owns more of the business than the owners do. This can lead to a lot of additional stress, including having to sell assets and sometimes even to losing the farm. Below are several specific ways that inadequate farm accounting can lead to additional stress.

 

Inadequate records cost time.

When applying for an operating loan, time is of the essence. Owners must be sure that farm financials are in good order and complete. If financial records are inadequate, additional time is required to put together a complete financial package.

 

Inadequate records can cost money, too.

Insufficient record keeping can lead to tax-related issues. The tax accountant may have to spend extra time (and collect additional fees) to organize inadequate records. Incomplete records going into an IRS audit can lead to the assessment of fines and penalties to the business.

 

Trends become harder to identify.

Insufficient accounting leads to inconsistency year over year. Lenders look at a business’ financial performance over several years to analyze trends. If financial processes are not a priority and managed properly, financials records will be inconsistent, and answering lender’s questions will be more difficult. Variances become much harder to explain.

 

Shoddy record keeping undermines lenders’ confidence in a business.

Lending is a risky business, and the lender must be confident in the business owner’s ability to make sound financial decisions and manage the business. If a lender sees inadequate financials, the lender will not have confidence in the business and is less likely to approve a loan.

 

Lack of funding puts extra strain on the business.

If the farm business cannot get an operating loan, owners may have to take a job off the farm to makes ends meet, and/or owners may have to ask friends and family for financial assistance.

 

Sound decision making can be impossible.

It is impossible to make timely, sound financial decisions if records are not consistent and complete. Owners will find it difficult to determine the best course of action when faced with difficult decisions if the financial health of the farm business cannot be distinguished because the accounting is inadequate.

 

Professional help with farm financials is a must.

Good financial records reduce stress by providing accurate information in a timely manner for decision makers and empower owners to be proactive in an environment that is too tumultuous to effectively navigate in a reactive manner. Farms must hire a capable accountant—whether directly or through an outside company—in order to maintain complete financial records. Owners and managers must communicate timely and completely with the farm’s accountant. Even if it’s not the owners or managers, someone on staff must communicate all information that impacts the farm’s financials. Too much is at stake when looking at the family farm to not make record keeping and accounting a top priority.

AgriSolutions specializes in providing financial services, counseling, and education to family farmers across North America. We offer multiple levels of agricultural accounting to provide the information you need to access capital and make sound decisions for your farming business. Feel free to contact us with questions, or click the link below to request a free consultation.

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Written By

Amanda Fields

Amanda Fields

Senior Accountant | afields@agrisolutions.com

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