Mind Your Farm Business — Ep. 112: DIY or outsource? The best farm bookkeeping strategies

Foreign business on RealAgriculture.com is brought to you by RBC Royal Bank. Hello and welcome to another episode of the Mind your farm Business podcast, brought to you by RBC Royal Bank. I'm your host, Shaun Haney of RealAgriculture.com bookkeeping. It is not glamorous, it's not flashy, and for many farmers, it's the task that gets pushed to the bottom of the list, unfortunately. But here's the truth. If your books aren't accurate and up to date, you're kind of farming blind. Without good records, you can't make confident decisions, spot problems early, or even know if your business is truly profitable. That seems kind of blindfolded. To help us tackle this important but often overlooked side of farm management, I'm joined today by Ursina Studhalter. Ursina is a chartered professional account, a cpa, a sheep farmer in Quebe, and the voice behind Farming Frontier Studio. She blends her background on a mixed farm with the professional account with her professional accounting career to show farmers how small bookkeeping habits can have a massive impact. In this episode, we'll dig into why bookkeeping is the foundation of every farm business and how to avoid the trap of survival mode, record keeping and the practical steps that can turn your numbers into a tool for growth rather than a chore on the to do list. Well, let's get to it. Ursina, welcome to the Mind you'd Farm Business podcast. Thanks for having me, Shaun. Okay, so tell us a bit about yourself. So I am Ursina, as you mentioned, and I am a chartered professional accountant. I work out of Renfrew, Ontario, which is close to Ottawa. But in a bigger picture than that, I am also a sheep farmer alongside my husband and we farm in Western Quebec with those sheep. And I got. I've always wrote, so I've written for other publications in the past. It was my summer and intern job and I missed that and early pandemic. I didn't have a whole lot to do, didn't have a whole lot of social interaction. So I started writing about accounting and farm business and just my thoughts on where those two can intersect. So, yeah, that is. That's kind of your rundown of what. I am like, like I mentioned in the opening. Yeah, many farmers really have to like force themselves to do bookkeeping. I. I don't know. I don't know what it is. There's something in the makeup of the skills that it requires to be a farmer that are not exactly running parallel a Lot of times now different because you know, you are a CPA and you are farming. So you, I think you're a little bit of an anomaly from that aspect. Why do you think this is? It's boring. To most people it's boring. I happen to love numbers and spreadsheets and to me there's a bit of a puzzle. But the actual data entry, even I find that boring because it. You have to force yourself to sit in an office. Where do farmers want to be not in an office. They'd like to be sitting in a tractor or in the barn or something. They want to be doing something. And it's repetitive. It's continuously the same thing. But good side note to that is most of the time your bookkeeping is repetitive. So once you teach yourself how to do the basics of it, it's always the same thing. You do just have to make yourself do it. And this is a universal thing. It's not just agriculture that has to struggle with bookkeeping. I find a lot of clients who have, I'm going to call them primary industry occupations struggle with the same thing. So your contractors, your construction companies, electrical companies, all of those people who like to work with their hands on bookkeeping is not their forte and it's not something they enjoy. You call it the fine print of farm business. What do you mean by that? If you don't understand your bookkeeping and where your numbers are running, sooner or later it's going to catch up with you and it's going to cause you grief that you could have avoided. It's this thing that nobody thinks about when they start a farm business. You get fair bit of conversation about in livestock, what breed should I pick, what animals should I work with, what crop rotation? If we're talking cash crop, what can my land do? All of these things. But we forget that it takes money to run a farm and you need to know what money's coming in, when it's coming in, when it's going out. And just also your compliance aspect, if you don't have that stuff up to date, you're sooner or later gonna have a very unpleasant conversation with the CRA or your bank. Somebody is gonna, somebody's gonna demand this from you and it just gets glossed over because it is not glamorous, for the lack of a better word. Yeah, it does require that, that discipline. Right. And you make the case that bookkeeping should be kind of a like a weekly task. And I'll, you know, self admittedly here, I probably should follow some of that Advice. I a lot of times push off some of those things to make it like a monthly thing on a Saturday. And the further you push it out, the more the procrastination, I guess, effect sort of builds. Is that true in your mind? Yes. Yeah. And you also, then suddenly you become overwhelmed. Like you realize that, oh, you haven't done your bookkeeping in a month, two months. Now a lot of farms end up being quarterly files for hst. That's, that's a common one. So now suddenly you have that HST deadline looming and you're sitting there with a whole month or three months worth of transactions and it's going to take you maybe half a day, a whole day, worst case scenario, a whole weekend. And you hate that task, you don't want to do it. And it just becomes this vicious cycle. And worst part is, if you leave it that long, you might forget what happened. We're not exactly known for taking great notes all the time, but you get a bunch of transactions, you bought something in a hurry, you have the receipt somewhere, or maybe it's just on your bank statement because you paid with debit, because, I don't know, piece of a plow broke and you went and picked it up and you kept on running and you paid the bill, but now you can't find the bill, you can't reconcile everything and it just becomes this awful snowball effect. And then you hate when you're in that snowball and you swear you're not going to do it again, but you don't like doing it. So yeah, it's just a suspicious cycle. It's like you got a camera and you're following me around or seen. I. That kind of hit home a little bit. I, I have an accounting friend that talks about how he's got a couple clients that at the end of the year, you know, they're a little bit of an extreme as well, where you know, everything's, all of the, all the paperwork, you know, receipts and invoices, it's all basically essentially in a garbage bag. And it's sort of like, hey, let me know if I made any money this year. And those are, those occurrences are much more rare than they, they used to be. But we've only. They're common enough. I'd say if I'm talking about farm clients, probably 50% fall into that bucket of haven't been doing their stuff. Especially people who are smaller operations, are running smaller operations and who only have to file their HST or their compliance once a year. People have to file their compliance documents on a more regular basis. They're more likely to be up to date, especially once you start talking payroll, because you cannot afford to mess around once you get into payroll. So once you have employees, it has to be done, has to be done regularly. You need to file that stuff and that as a consequence, they're already sitting in their office running payroll. Generally. They're also then doing the basics of their bookkeeping. So a lot of times in, in management seminars or you're talking to your mentor, they will say, well, you know, do the things that you love doing. Well, I don't like bookkeeping, so outsource it. Right. Is now there are a lot of farms though that they do. They do do it themselves. Is, is that a bad thing? It's not a bad thing at all. If you can make yourself do it and actually sit there and get it done and have it. Sort of the absolute bare standard would be to reconcile your bank. That just means what's been recorded matches your bank statement. There might be some differences, but you know what those differences are. Most modern accounting software helps you do that with a click of a button. So if you can do that, that's totally acceptable. That's very workable. You run into issues if you're trying to do it yourself because you didn't want to pay somebody to outsource it because there is a cost. And now you're behind on things you've missed, things you might have missed opportunities, missed a deadline somewhere. And at that point it's a hindrance to you and you would have been better off outsourcing it. Yeah. The last thing you want to do is miss a deadline that costs you money a lot. Yes. Yeah. Keeping up to speed on some of those deadlines, like there's nothing worse than, okay, I'm gonna do this. I'm ready, I'm all set. I'm in the, I'm in the right headspace, I'm motivated, I got the discipline. And then you realize, oh no, we were supposed to file for XYZ a week ago. Right. And then. Or, or ah, deadline's Monday. Now I really got a crunch because it is Saturday. Right. So those deadlines is important to keep those in front of you as well. Yes. And if you're, in most cases, if you're running, if you can file your own taxes as well, which if you're not incorporated, you can do that. I've met some people who do a very good job at it. So this is not, it's not outside of the wheelhouse of what they can do. But if you are in a corporation or slightly bigger operation and you already have a CPA or somebody who files your year end sitting down to do your books on like a Tuesday, Wednesday before the deadline on, also means you have the opportunity to then call somebody and go, hey, I think I don't know how to record this, or I think I made an error somewhere, or this looks wrong. Do you have a minute to take a look? And you can then get feedback and then not end up in a situation where you did the best you could. You hit the file button, filed it. We get to year end and somebody's reviewing your books and goes, actually, there was a mistake made in your first quarter and that mistake is now going to cost you money down the line. Or usually the better case scenario is especially with capital assets, the itc. So the income, basically your HST refund portion there on a capital asset doesn't get recorded, you then miss out on that for the rest of the year because you, I don't know, bought something in March and didn't record it till December. So there's also lost opportunity, not just penalties. And because we're talking about the financial side of the equation here as well, it's important if you are, have you hired somebody to do the bookkeeping? Or maybe it's somebody in the family that's doing the bookkeeping. It's important for you as the farm manager to still be in the know of what those numbers are saying. You can't just, you know, sort of delegate and forget. Right? Yes. You have to stay on top of the overarching trends and narrative that it's producing. Yes. So prime example of this. I have gotten flack for it in the past, but I do my own books. I record everything. I know what my numbers are. We realized at some point about last year that our feed bill was running a little bit crazy comparison to what was going on. And I ended up, because I had my numbers up to date, I ended up chatting to somebody else and went, hey, this is what I'm paying for feed. And they go, oh, no, I'm paying like half of that price. Made some calls, got a cheaper feed bill. On top of that, we realized that we needed to sell our lamb sooner because they were at some point costing us more than we were ever going to get back. So that's like. And you can't make those decisions if you have no idea what's going on in your accounting. You might have some idea of what you're paying or what? Most, most farms are very good at knowing what they're going to receive. They know what the cash crop price is. They know what the fertilizer price is. They're up to date on all of those numbers. But there's all those little costs that you don't, that you can't reconcile in your head on the fly. And for that you need your books to get an up to date picture. We'll be back with more of the Mind you'd Farm Business podcast. But first a word from our sponsor, RBC Royal Bank. This episode of the Mind you'd Farm Business podcast is brought to you by rbc. Your idea of preparing for the unthinkable happens here. No one knows what tomorrow will bring, but with RBC and their team of experts by your side, you can plan for the unexpected. From market risks to exploring new tech to weather challenges, they'll help you get the peace of mind you've been looking for. Visit rbc.comagriculture to learn more. Yeah, well in, in today's world, thank goodness the paper ledger is, is gone. We don't, we don't need to do that anymore. We have a lot of great software tools that continue to improve and make you know what I would consider life a lot easier. And they're a lot more intuitive than, than, than early versions. You know the QuickBooks or Ag Expert there, there's lots of tools available to, to, to farmers across the country. What are some of the considerations that you need to go through to make sure that you're, you're picking the right tool for you? I think you need to look at with the size of your operation and what you're trying to achieve out of it. So if you have multiple agricultural enterprises within your operation, like say you have a beef feedlot, you have a poultry barn, but you also have a large cash crop operation. Probably a product that is very specifically targeted to farmers like AgExpert might be a better option because it's going to allow you to split it up better versus if you are a smaller farm, you have one type of enterprise. Maybe like me, you only have sheep. There isn't a whole lot of activity, something like QuickBooks that is sort of universal, anything can fit in there, works quite well. Also QuickBooks probably works better if you're a custom worker because you have some more options in there to do billings. The other option I'd like to mention is a product called Wave. It's actually free. I have a number of farm clients who are on it There is a paid portion of it, but the free features work just fine. If you're a smaller farming operation, and I mean I personally use it, so it does the results work for me, you're not going to get the fancy reports you get out of QuickBooks. That's the other thing. If you want fancy reports to do all sorts of analysis, QuickBooks, maybe AgeXpert is a better route versus Wave. You get the bare bones, it's functional, you can do your taxes and you can keep going. Now, when we have a family farm, we naturally have this sort of mixing, let's put it that way, in terms of some of the corporate expenses or company expenses and some of the personal expenses. When we're thinking about those shareholder transactions, what's the best practical advice you can give to farmers to keep the lines clear, to keep yourself out of trouble. Try to actually separate them. So if you have to for some reason, because I know it's sometimes difficult to get certain types of credit, like especially if you're a smaller farm, you might not have a corporate credit card and the spending limit on your debit card might be quite small or you want to use points or something. Designate one card for those transactions or designate, this is my card that's in my wallet for when you know there's an errand being run and somebody calls you and goes, oh yeah, you need to grab something else. You don't have that checkbook. You do want to make sure they're separate and you absolutely want to avoid using your farm account for personal purchases. So the absolute last thing you want to see on there is things like groceries or vacations like just don't, don't do that. And it's that you need to do some sort of like designated as a shareholder loan, correct? Yes, if it's incorporated. So if it's incorporated, you're much better off doing lump sum back and forth. So example, if you cash flow is a little tight, you have off farm income, you need some cash influx because your fertilizer seed bill is due. Put in a lump sum of, I don't know, four or five thousand, whatever's necessary, put that in to your farm account, track it, because you can then take that back out without causing yourself tax grief. It's if you put in 5,000 and you extract 10,000, then we have a problem and you might have a really big tax problem because you never want to be in a position where you technically owe the farm money. Because at that point we need to talk dividends, we need to Talk salaries, something needs to be done there. And in terms of like purchases, you just want to keep that to a minimal and track them right away. Keep all the receipts, try to get the receipt in the farm name so that it's just a matter of, hey, I had to use my personal credit card for this purchase because I was in the city and somebody called and said, hey, by the way, are you driving past Princess Auto? That sort of thing. Yeah, I know it happens. But you want to reduce it and you especially want to have a separate bank account for your farm business. Right. Even if it is not incorporated, just most banks will let you have a second account even if it is just in your name. Because it makes it a lot easier if you were ever to have a situation where somebody came to review your books. Yeah. Easy to keep the credit cards, the mixing straight credit card statement versus like having the same bank account. That, that, yes, that would be ultimately very confusing, I think. Yes, I, I have seen it happen and it is awful. So it is the number one recommendation, like just do something else. And because you can do bulk transfers and that's really not a problem, I think, as long as you track it. Yeah, sorry. When you're also doing your, your bookkeeping for, for the farm, I think we also get these discussions about, wow, that's fine, that's a write off. Right. In your, the story that you wrote, you made me laugh because my wife's favorite show is Schitt's Creek and they talk about, you know, it's a write off. Right. They have a good joke about it. It's all a piece around a whole episode. So what are some of the most common misconceptions farmers have about what is a write off versus what's not? So biggest one is usually actually equipment. Like we go out at the year end. Sorry, it's a running joke. It's such a stereotype. But it still happens. Where you think you've had a good year and it's always this, you think it's not usually true. You think you had a good year, you're worried you might have to pay taxes, so you go out and buy a, I don't know, manure spreader. I'm trying to keep the dollars a little lower. A manure spreader, because you think that's going to offset your tax situation or just certain personal items like things fuel for your pickup truck. If you have a pickup truck that you're using for the farm, you need to have somebody help you through those transactions to get it set up. Right. Because vehicle use is a very, very common one where things can go astray very, very quickly. You need to have a mileage log for those. And how many farmers have so many vehicles that there is one for just farm use? So it's generally things like equipment costs, things for horses are commonly in there. If you're not actually farming horses, are they supposed to be on there? Pets, things for your household, Like, I've seen it, I've seen it all. But if it's not used directly for your farm business, if it's not used to do farm things all the time, then you need to consider whether or not you can deduct that. And you can't deduct equipment fully. You did for a little while there. So I should paraphrase that. There was a time period during the pandemic where there was a credit available and yes, you could get 100% write off. That's not generally the case and it's not the case anymore. That expired about a year ago. But in the horse example, what if we have the horses to keep the grass down and it's, it's part of sort of some, some turf management. Can we, can we do things like that? Are you going to sell them? Well, I'm always trying to sell them. It's my wife that has a different opinion. Yeah. So it's when the product, whatever or whatever it is in the case of the horses, because there are, there'll be ranches out west that have horses that they need. And therefore in that case, that is a tool used to do a job. And you may also be selling them. Generally, if you're going to be selling them for sheep, livestock, guardian dogs, that sort of expense is acceptable. You need that dog as a working animal versus the Chihuahua that sleeps on your couch. Probably not. Unless it's also a herding animal. I don't know. There is an element, as you've demonstrated, there is an element of spin to it, but a big part of it is, can you. And is it reasonable to expect that to be a farm activity that most farms in your situation would be doing? So horses on a chicken farm, I don't know. Unless you're selling them. Because lesson, horses are not agriculture. So they are an entirely different thing. Also, horse breeding outside of horse racing is not agriculture. Like horses themselves. It's, it's, it. They're probably like the hot topic of what can you do and what can't you do. Yeah, very interesting. So what are some, Is there anything else that you. For the the audience farmers need and ranchers need to keep in mind when it comes to bookkeeping for, for the farming operation that you want them to remember. It's. I know it's because it's blown up to be a big task in your mind, but really, if you can set aside just one, maybe two hours a week to sit down, go through your trans. The software that you can get now is really good. It can auto import those transactions for you, which makes it so much faster and you just have to categorize it. And if you invest that hour or two instead of, I don't know, getting into a Twitter war or something, you're going to see results because you're going to know where your books are at, what your cash flow is at. And if you see an opportunity that you would like to take advantage of, you don't have to go and make sure that your financial statements are ready because often lending is part of an opportunity, but if you see an opportunity where a quarter section or a piece of equipment comes up and you they would really benefit your operation, you're already in a position where you can act in a very timely manner versus well, I would like that. Oh, I've gone to the bank now I need to present my financial statements. I'm six months behind on the books. Not doesn't can do a very good relationship with your lender versus you go, yep, my statements are up to date as of the last month. Here's my running total. It's been reconciled. Here you go. This is where I'm at. And yes, I have the cash flow to do the payments of whatever it is. And also don't like at the same time with all of this. Don't punish yourself like no, if you really don't like doing like if you really don't like bookkeeping and doing this side of, you know, as a component of what needs to happen in, in a, in a small business, there's tons of fractional bookkeepers out there to assist you and help you. Right. A lot of accounting firms now offer that kind of of service as well. Never mind someone that does a really good job with bookkeeping that has multiple clients in a local community, that, that also is a possibility here to like if this is such a mental burden and you're like man, my time can be spent elsewhere doing xyz, then take that route as well, right? Ursina? Yes, of course. And I, I off the top of my head, I can give you three names of people who do farms do booking. They're remote. They work across the country, they're good at what they do, and as long as you remember to send the information in, they will get it done in a timely manner. They can make sure all your compliance and that could be money very well spent, especially if you do get into a vicious cycle of, well, I've caught it up. I have my best intentions. You do it monthly for about three months, then harvest shows up and you're off the bandwagon again. At that point, it's probably better if you spend yes, it's not totally cheap, but you spend decent money. Get somebody to do that, they'll handle all your compliance for you. Because yeah, if you're going to outsource it, you might as well outsource as much of it as you can, therefore making it so much easier for you and something you don't have to worry about. Great stuff, Ursina. Thanks so much for joining us here today on the Mind your Farm Business podcast. Thank you so much for having me. It's a great conversation. That wraps up another episode of the Mind your Farm Business Podcast. A big thank you to Ursina Studhalter for sharing her insights. Her reminder was clear. Accounting may be it can't be precision guesswork, but the most accurate and up to date your records are, the better equipped you'll be to make smart business decisions. And smart business decisions are what we need in these volatile times. The little things, they really count here. Setting time aside each week for bookkeeping, knowing your filing obligations and paying attention to the financial details all add up to a stronger business. And that gives you options when challenges come your way. For more episodes of the mind you'd farm business podcast, head over to mindyourfarmbusiness.com or you can get this podcast wherever you get your podcast. A big thank you to RBC World bank for supporting this series. And if you have any questions or feedback, don't hesitate to reach out to me. Shaneyaalagriculture.com or you can call the RealAg Feedback Line, 855-776-6147. Thanks for tuning in. Until next time, keep on minding your farm business Us.