- Author: Deena Miller
One of the first things I did in preparation for starting a farm was get the accounting software, QuickBooks (QB). I actually asked my parents for QuickBooks as a birthday gift! Five years later I am still getting farm tools for my birthday, but that first one was the most important. QuickBooks has helped our farm track income and expenses which has, in turn, helped us to identify efficiencies and drags in our business. It has also been instrumental in planning for the lop-sided cash flow of a vegetable farm. Here are some initial QB tips from the recent UCCE Farm Business Class on QuickBooks by Michael and Melody Bergloff CPAs;
- Create your own chart of accounts that makes sense to you, don't worry about taxes and schedule F, your accountant will know where to put your numbers.
- Close your books every year! Your net income (look at your profit and loss statement) needs to be moved into partner equity so on January 1st your balance is $0.
- Every draw from and investment into your business should reflect the percent ownership that you have agreed upon, so a 50/50 partnership should have equal owner draws from the business.
- The recommended type of QuickBooks to purchase is Premiere. That has enough bells and whistles to cover all of your accounting needs.
- Do not link your bank account! All too often this leads to the double entry of income and expenses and can make your books very messy.
QuickBooks allows me to not only track sales and expenses in my chart of accounts in categories like “produce” and “plants”, but sales of individual items through my invoices. Tracking sales with specificity creates records that are invaluable for deciding what crops to grow more of and which ones to drop. As our farm moves toward wholesale and away from the weekly vegetable box, knowing what crops are profitable is even more essential. When deciding how to streamline, we started with our QuickBooks sales records and dropped anything that wasn't bringing in at least $1,000. I like to ask my farm partner “how much did it feel like we made on x, y, or z” then tell him the true number. Some crops are exhausting and overwhelming and make very little when all costs are considered, and some are efficient and worth the effort. Tracking sales is one step in understanding that relationship, and is definitely easier for us now that every bunch or pound is sold with a corresponding invoice, unlike with the CSA boxes.
Another tip to track sales is using subcategories. I want to know how much green curly kale we sell, but also how much kale in total. We have a crop category with subcategories for kale, onions, parsley, summer squash, winter squash, plants, flowers, and more. All of these categories also correspond with our chart of accounts, every piece of produce is sold through the account “Produce Sales”. If you only grow a few crops and want to better track income and expenses, instead of “Produce Sales” and “Produce Expenses” you could put “Kale Sales” and “Kale Expenses” in your chart of accounts.
Your chart of accounts can be as long as you need it to be, and as specific as makes sense to you. For example, your expense account would be “Seed”, then under that you create subaccounts: cover crop seed, vegetable seed, and flower seed. For a grower with only a few crops to track, those seed subaccounts could be the crops they grow like spinach, pumpkins, daikon, and sweet potatoes. I repeat: create a Chart of Accounts that aligns with the way that YOU understand money as if flows into and out of your business.
Another benefit of QuickBooks is tracking progress, overall or with specific items or enterprises. The Report Center is a tool that can show you many things, but I am usually looking at the sales by item, or by customer. I can look at the sales of an item for a specific date range for the current year, and compare it to previous years. We are trying to grow our plant starts business, so knowing sales in real time allows us to make adjustments to hit our goals if need be. It is encouraging to know that we are over $1,000 ahead of our sales from 2014 on this date.
The recent UCCE class on QuickBooks taught some people the most valuable concept of all; sometimes it is best to hire a professional to do the initial set up. Most of us need a little help down the path of organization and financial transparency!! This is money well spent if it helps you keep a close eye on the income and expenses of your farm business.