Xero accounting for farms
Farming is a huge part of the New Zealand business community and in many provincial accounting firms, farms make up more than 50% of the clients. This coupled with the work we have been doing with Federated Farmers, prompted us to undertake some research to better understand the needs of accounting for farmers, from both the accountant and the farmer perspective. The biggest inefficiency we saw was rekeying transaction based data – a similar problem to that experienced by city accountants.
Here’s what we’ve learnt:
- Farmers don’t do accounting – they manage their farms.
- As a general rule, farmers don’t keep an electronic record of stock. They just know how many stock units they have. You ask them and they will tell you. They don’t need a computer.
- At end-of-year the closing stock calculations are prepared by an accountant.
- There are two stock valuation methods available for tax purposes, National Standard Cost or Herd Scheme. Both are reasonably technical. The necessary calculations and valuations are done on a spread sheet with the help of an accountant.
- Farmers don’t do monthly stock takes.
- Some farmers receive a bi-monthly cash basis management report from their accountant, but this is not widespread.
- The accountant generally takes care of the GST requirements for the farm.
- Accounting is generally on a cash basis and farmers rarely create invoices. Most accounts receivable invoices are buyer created.
- Most monthly bills are on account at PPG Wrightson, Farmlands or RD1.
- Farms have term debt against the land asset and this is reasonably large.
- Banks offer an improved lending capacity and lower interest rates if the farmer produces monthly accounts that demonstrate good financial awareness and management. Farmers are now taking monthly accounts more seriously, especially those buying a farm.
- The banks also require a budget and most farms now prepare these. Best practice is to prepare an annual budget, but to make quarterly forecasts and then compare actual to the budget and forecast.
- The key performance metric for a farm is the “Economic Farm Surplus”. This is used by farmers and farm consultants as a basis for improving the financial performance of the farm.
- Having broadband is reasonably common in the farming sector, especially among dairy farms.
What can Xero do?
- Include quantities at the transaction level and a stock reconciliation which ages stock correctly so as to help the accountant prepare the end-of-year stock calculations and journals.
- Provide for cashflow budgeting and the ability to have multiple budgets to allow for the annual budget and the quarterly updated forecast.
- Provide the Economic Farm Surplus Report as a standard report that can be customised in Xero.
- Provide the end-of-year accounts formats for farms, including the correct notes to the accounts.
- For key purchasers in the supply chain, make it possible for their buyer created invoice to automatically appear in Xero.
- Arrange for daily data feeds from the on account trade merchants.
We’re still gathering information, so if you do have any requests please let us know. As you can see there’s lots to do and we’ll be working on it over time, releasing features as we go. A top priority is to enable the quantity capture and data feeds as early as possible, so the accountant can use Xero for monthly reporting, GST and data capture for end-of-year.
The other stream of work we are doing with Federated Farmers is look at how various software suppliers can work together to improve rural productivity. For anyone who wants to join that discussion we’ve set up a LinkedIn group.