Farm accounting made simple: Track, manage and grow your farm

Published Friday 16 January 2026

Table of contents

• What makes farm accounting unique?
• Getting started with farm accounting
• Key considerations for farm financial management
• Choosing accounting software for your farm
• When to hire a farm accountant
• Making farm accounting work for your business
• FAQs on farm accounting

Key takeaways

• Implement a specialised farm accounting system that tracks living inventory changes, seasonal cash flows, and government subsidies, as these unique agricultural factors require different approaches than standard business accounting.
• Align your accounting calendar with government-defined livestock classifications and seasonal dates to ensure compliance with subsidy requirements and tax obligations, even when these don't match your farm's natural cycles.
• Track all land maintenance costs including fertiliser, irrigation, drainage, and pest control as valuable asset investments, since well-maintained agricultural land typically appreciates over time while neglected land loses productivity and value.
• Consider hiring a specialised farm accountant who understands agricultural tax rules and subsidies, as their expertise in optimising deductions and maximising government programmes typically saves more money than their fees cost.

What makes farm accounting unique?

Farm accounting is a specialised form of financial management that tracks living assets, seasonal cash flows, and government subsidies unique to agricultural businesses. Unlike traditional businesses, farms deal with assets that grow, reproduce, and die, which accounting standards refer to as the option to hold biological assets and agricultural produce at cost.

Why farm accounting is different:

• Living inventory: Crops and livestock change value as they grow and mature
• Seasonal cash flow: Income concentrates in harvest periods while expenses occur year-round
• Government regulation: Subsidies, compliance requirements, and tax rules specific to agriculture
• Weather dependency: Natural disasters and climate directly impact profitability

These factors make farm accounting more complex than standard business accounting. With proper planning, you can establish routines to manage every aspect of your farm's finances effectively.

Getting started with farm accounting

Setting up your farm's books correctly from the start saves you time and gives you a clear view of your financial health. A good system helps you track performance, manage cash flow, and stay compliant. Here's how to get started.

Set up your farm record-keeping system

A solid record-keeping system is the foundation of good farm accounting. Decide whether you'll use spreadsheets or dedicated accounting software. The key is to choose a system you can stick with to consistently track all income and expenses, from seed purchases to crop sales.

Choose your accounting method

You'll generally choose between cash or accrual accounting. Cash accounting records income and expenses when money changes hands. Accrual accounting records them when they're earned or incurred.

Many farms start with cash accounting for its simplicity, but accrual offers a more accurate picture of profitability over time. Check with an accountant to see which is right for your business and local tax rules.

Create your farm chart of accounts

Your chart of accounts is a list of all the financial accounts in your business, organised by assets, liabilities, equity, income, and expenses. You can learn more about how charts of accounts work in Xero on the chart of accounts guide.

Your chart of accounts is a list of all the financial accounts in your business, organised by assets, liabilities, equity, income, and expenses. Customise it for farming with specific categories like 'Livestock Sales', 'Fertiliser Costs', 'Equipment Maintenance', and 'Government Subsidies'. This helps you see exactly where your money is coming from and going to.

Key considerations for farm financial management

Once your accounts are set up, ongoing management is key to a profitable farm. Paying attention to these specific areas will help you maintain financial control and make smarter business decisions.

Track your land as a valuable asset

Land as an asset means treating your farmland as valuable property that maintains or increases value when properly managed. Well-maintained agricultural land typically appreciates over time, while neglected land can lose productivity and value.

Essential land maintenance costs to track:

• Fertiliser: Maintains soil nutrients and crop productivity
• Irrigation: Ensures adequate water supply for plant growth
• Drainage: Prevents waterlogging that damages crops and livestock areas
• Soil pH management: Adjusts acidity levels for optimal plant health
• Weed control: Removes competing plants through manual or chemical methods
• Pest management: Controls insects and diseases that threaten crop yields

If you look after it well, good quality land should remain productive year after year. Whatever it costs to keep your land in good condition is likely to be money well spent. Make sure you account for all these expenses.

Stay current with government subsidies and schemes

Farming is a critical industry. If a country doesn't have the resources to feed itself, it will have to rely on imports to keep its population alive. For that reason, most governments provide subsidies to farmers to help them out during the lean years, to make particular types of farming more appealing, and to ensure that the country never runs out of food.

Government subsidies are financial payments that support specific agricultural activities and change frequently based on policy priorities. Modern subsidy programs shift regularly to address market conditions and government objectives; for example, the Basic Payment Scheme (BPS) was phased out in England in 2024 and replaced with a new system of 'delinked payments'.

Align your accounting calendar with government requirements

Accounting calendar alignment means using government-defined dates and livestock classifications in your financial records, even when they don't match biological reality. This standardisation simplifies reporting and ensures compliance.

Why government timing matters:

• Livestock classifications: Age categories determine market prices and tax treatment
• Seasonal reporting: Government deadlines may not align with natural breeding cycles
• Compliance requirements: Official dates trigger subsidy eligibility and tax obligations

Best practice: Use government definitions for livestock ages and seasonal dates in your accounting system. This approach reduces complexity and ensures regulatory compliance, even if it doesn't perfectly reflect your farm's natural cycles.

Record all changes in land use

As economies change, so does the type of farming that's carried out on the land. For example:

• Pasture to crop production: A shift towards a more vegetarian society can lead to pasture being given over to cereal, fruit or vegetable production
• Arable to native bush and plants: Some governments may pay farmers to return farmed land to its 'native' state by planting indigenous species and letting them grow wild
• Carbon capture schemes: These pay farmers to change land use to forestry, as a way of 'locking up' carbon in new tree growth
• Forest to livestock: In some parts of the world forests are cleared to make way for meat production, mainly beef for sale to burger chains

If your use of land changes, even if it's just a few fields, be sure to record it in your accounts. Make sure the land value (the asset) is adjusted if necessary and that you account for the sale of any stock that was on the land before. Or, if moving to a livestock farming model, be sure to record the cost of buying stock.

If you record these changes as they happen, it will make it much easier to keep your business accounts up to date.

Know your livestock and crop inventory

Livestock inventory tracking involves recording all changes to animal numbers and values throughout the year. Living inventory constantly changes through births, deaths, purchases, and sales.

Key livestock changes to record:

• Births: New animals increase inventory value
• Deaths: Natural mortality reduces total stock value
• Purchases: Bought animals add to inventory at cost
• Sales: Sold animals reduce inventory and generate revenue
• Growth: Maturing animals increase in value over time

Why accurate tracking matters: Every animal has a monetary value that affects your farm's total asset worth, with UK tax guidelines valuing cattle at 60% of open market value and sheep and pigs at 75% for valuation purposes.

Regular updates ensure your financial records reflect current livestock values for tax and insurance purposes.

Understand depreciation for farm equipment

In most countries, the cost of new equipment can be offset against tax. And its value will depreciate over time as it becomes older, wears out or is made obsolete by newer technology. Make sure you understand the rules for depreciation in your country, because the value of your equipment will affect your tax bill.

• Tractors, trucks, harvesting equipment and other farm machinery: Built to last, but undergo heavy use and wear and tear in all weathers. Good quality equipment may hold its value, but with the market shifting (UK agricultural tractor registrations were 15% lower in the first nine months of 2024 compared to 2023) and new technology moving fast, older machinery can become less valuable.
• Computer equipment: Increasingly essential for managing a farm efficiently, computers depreciate faster than almost any other type of equipment.
• Hand tools, machine tools and repair equipment: Often long-lasting with a long depreciation tail, though low-quality items can fail sooner and be a poor investment.

Equipment depreciation tracking requires recording purchase costs and calculating annual value decreases for tax purposes. This process reduces your taxable income while reflecting true asset values.

Steps to track depreciation:

1. Record purchase details: Document cost, date, and equipment specifications
2. Determine depreciation method: Use rates specified by tax authorities
3. Calculate annual amounts: Apply depreciation percentages to original costs
4. Update records yearly: Adjust asset values in your accounting system

Regular depreciation tracking ensures accurate tax deductions and helps plan equipment replacement timing.

Account for weather-related losses

Farming depends heavily on the weather, which can have a big impact on your results. A hot, dry summer might suit wine growers but make life difficult for dairy farmers. Unseasonal storms can damage crops and unexpected rain can spoil hay in the fields.

Loss accounting means recording weather damage, crop failures, and livestock deaths to reduce taxable income. Documented losses prevent paying tax on profits you didn't actually earn.

Types of farm losses to record:

• Crop damage: Hail, drought, or flood destruction
• Livestock mortality: Disease outbreaks or weather-related deaths
• Infrastructure damage: Storm damage to buildings or equipment
• Market losses: Price crashes that reduce inventory value

Documentation requirements: Keep photos, insurance reports, and professional assessments as evidence. Proper loss recording ensures you only pay tax on actual profits, not theoretical income from destroyed assets.

Monitor your farm's profitability

Farm profitability can be difficult to measure. There have been various attempts to do so, including:

• Economic Farm Surplus or similar schemes: Favoured by accountants, this uses various farm accounting metrics to give an overall performance rating
• Month-to-month profit: A useful quick guide to how your farm's performing right now, but no help in predicting future cash flow or profits
• Working costs to milk solids: A popular one for dairy farm calculations, though be sure to keep your figures up to date and based on current milk solid prices
• Revenue or profit per unit area: A measure of how much revenue or profit is generated for each unit area of farmland, for example dollars per hectare. While this gives a good idea of current farm performance, it doesn't always take underlying costs into account. Almost any farm can appear temporarily profitable if it's had enough recent investment.

Farm accounting software helps you measure profitability accurately by tracking your income, costs and inventory.

Choosing accounting software for your farm

Modern accounting software can automate many of your financial tasks, freeing you up to focus on the farm. The right tools keep your data organised, accessible, and ready for analysis.

Key software benefits:

• Automated calculations: Reduces manual errors in profit measurement
• Trend analysis: Identifies patterns in seasonal performance
• Forecasting tools: Predicts future cash flow based on historical data
• Comprehensive reporting: Combines all farm activities into unified financial view

Why software matters: Manual tracking becomes unreliable as farm complexity increases. Automated systems ensure consistent, accurate profitability measurement across multiple growing seasons.

Essential features for farm accounting software

Look for software that offers features tailored to farming. This includes inventory tracking for livestock and crops, easy expense management for snapping photos of receipts, and customisable financial reports. The ability to handle different tax requirements is also crucial.

Cloud-based solutions and mobile access

Most farmers have some form of internet connection these days. Speeds can vary in rural areas, but the connection is usually enough for the basics. Many online tools now support the financial and operational side of your farm. Some uses for the internet in general and the cloud in particular include:

• Checking stock prices and trends: Keeping up to date with these numbers can help farmers decide how best to utilise their land
• Accessing kill sheets, tracking milk solid prices, etc: Usually faster and easier than getting this information by mail or word-of-mouth
• Long-range and short-range weather forecasting: Vital, required knowledge for just about every type of farm
• Using cloud apps: These new tools offer much faster access to information, accounting tools, resources and bank accounts

Cloud-based farm accounting connects your financial data across all devices and integrates directly with banks and suppliers. This centralised approach streamlines farm management from any location.

Cloud accounting advantages:

• Bank integration: Automatic transaction imports reduce data entry
• Supplier connections: Direct feeds from feed stores, equipment dealers, and co-ops
• Mobile access: Check finances from tractors, barns, or livestock areas
• Real-time updates: Current financial data available anywhere with internet
• Automatic backups: Protects financial records from computer failures

Modern cloud software cuts down on paperwork and lets you see your farm’s financial information whenever you need it.

Integration with farm management apps

The best accounting software connects with other apps you use to run your farm. Look for integrations with farm management platforms like Figured or AgDrive. This creates a seamless flow of information, reduces manual data entry, and gives you a complete view of your business operations.

When to hire a farm accountant

You can manage the accounts of a small or even medium-sized farm yourself, but it takes time and can be complex. If you're running a family farm then you may be able to designate one member of the family to handle the accounts while another looks after the day-to-day running of the farm. However, there will still be a steep learning curve.

Farm accountants specialise in agricultural tax rules, subsidies, and compliance requirements that general accountants may miss, with experts from the Rural Accountancy Group actively calculating the impact of changing rules for thousands of farming businesses. Their expertise often saves more money than their fees cost.

Specific benefits of farm accountants:

• Tax optimisation: Knowledge of agricultural tax deductions and timing strategies
• Subsidy maximisation: Guidance on available government programmes and applications
• Compliance management: Ensures adherence to agricultural reporting requirements
• Cash flow planning: Helps manage seasonal income and expense patterns
• Time savings: Handles complex paperwork while you focus on farming operations

Cost consideration: Specialised farm accounting expertise typically pays for itself through tax savings and avoided penalties, making it a profitable investment for most agricultural operations.

Making farm accounting work for your business

Farm accounting covers a lot of ground, and every farm is different. If you want to simplify the process, Xero online accounting software can help.

Collaborative accounting means sharing real-time financial access with your accountant through cloud-based systems. This partnership approach combines professional expertise with your operational knowledge.

Benefits of shared access:

• Real-time collaboration: Both parties see current financial data instantly
• Faster decision-making: No delays waiting for updated reports or information
• Reduced communication time: Less back-and-forth requesting financial details
• Improved accuracy: Accountant catches issues while they're still manageable
• Strategic planning: Professional guidance based on up-to-date farm performance

Cloud collaboration ensures your accounting professional can provide timely, relevant advice when you need it most, improving overall farm efficiency and profitability. Try Xero for free to see how it can work for you.

FAQs on farm accounting

Here are answers to some common questions about farm accounting.

Do farms need specialised accountants?

Yes, it's highly recommended. Agricultural accountants understand the unique financial challenges of the sector, from seasonal cash flow and inventory valuation to specific tax rules and government subsidies. Their specialised knowledge can help you optimise your finances and stay compliant.

What's the best way to track farm expenses?

The most effective way is to use cloud accounting software with a mobile app. You can capture receipts instantly, categorise expenses on the go, and connect your bank accounts for automatic transaction feeds. This reduces manual data entry and keeps your records accurate and up to date.

How do I handle seasonal cash flow in my accounting?

Cash flow forecasting is essential. Use your accounting software to project your income and expenses throughout the year, identifying potential shortfalls during off-seasons. This allows you to plan ahead, secure financing if needed, and manage your spending to maintain a healthy cash balance.

What accounting software is most cost-effective for small farms?

Look for software with a flexible subscription model that can grow with your farm. A solution like Xero offers core accounting features at an affordable price, with the ability to add more advanced tools and integrations as your needs evolve. This avoids paying for complex features you don't need right away.

How do I account for livestock births and deaths?

Livestock births increase your inventory assets, while deaths are recorded as a loss. You should create journal entries to adjust the value of your livestock inventory accordingly. A farm accountant can help you set up the correct process for valuing your animals and recording these changes accurately.