Organic Broadcaster

Taming the paperwork cyclone: Good data in means good data out

By Jody Padgham, MOSES

I’ve got a neighbor whose truck scares me. The bookkeeper in me cringes as I see receipts flying around the cab, grubby on the floor, or wedged behind the visor. Many a farmer has heard the spousal lecture on the importance of saving and turning in receipts. The bills, receipts, checks and cash that you collect are the physical records that must be put together to create your farm financial recordkeeping system. If you have a messy system for collect­ing, entering and filing your receipts, then you will have a messy and inaccurate bookkeeping system, which correspondingly means a vague sense of your financial position. Because a farm is a business, you have an obligation, not only to your family but also to the IRS, to maintain good records. You can only do that if you have good systems for tracking what you buy and sell, owe and collect.

Make collection easy

A good place to start is to make collecting receipts as easy as possible. If receipts from purchases in town tend to not make it out of the truck, put a manila envelope on the dashboard or in the driver side pocket so the receipts can be collected in a safe place and found on bookkeep­ing day. A step beyond this is to put a receipt “collection box” where the person who goes to town most often will notice when they get back to the farm. That could be in the kitchen, farm office, or machine shed, but wherever it is, place a box (big enough to hold full-size sheets of paper), in an easy to see place close to the door, where the receipts and papers brought back from town can be conveniently dropped.

Before we go forward we need to take a step back to the store or neighbor or market that generated whatever record (a cash register or credit card receipt, one or more checks written to the farm, or a pile of cash…) has been collected. In an ideal world, each receipt has the type of payment (cash, check, debit or credit card) and items purchased printed on it by the vendor. But, there are always exceptions to the ideal. We might buy from a neighbor that has bad hand­writing, or doesn’t even have a receipt book, or from the local feed store that still hasn’t gotten a fancy cash register. Taking the time to write the type of payment, a check number, your initials (when others are buying for the farm, too), and what the purchase was for will make your bookkeeper smile. In the case of a check written without a receipt, this should all be written on a piece of paper. And, don’t just write “feed.” Nota­tions such as “feed for the ducks” or “calf pellets” or “50 bales of hay” will help later in the year when you might want to analyze individual enterprises. Unless you only buy one kind of feed, you should collect more detail so you have enough information to analyze later.

Income, too, must be tracked. I’ve seen ven­dors at farmers’ markets happily stuffing cash into their jeans pockets. I wonder what happens to that cash later. Hopefully it is segregated from any other cash in the vendor’s pocket, tal­lied as “market income” with the date and the market name and put in a secure location for deposit. Checks, too, are best isolated by market or sales transaction, if a larger sale such as live-stock, is made. If you accept credit cards or food stamps (SNAP cards) for your products, collect-ing a vendor copy of the receipt allows cross-checking of the electronic transactions.

Back on the farm, if you have a dedicated farm office, an “inbox” can make things simple. If you use the kitchen table as your office, you can use a dedicated basket, box or pouch file folder to hold receipts until bookkeeping day. The bookkeeper can be the one that cruises the collection areas (the envelope in the truck, or the boxes in the shed or milk house) on a regular basis to pick up whatever they hold. An easy-to-find collection point may not be especially secure, but can be balanced with frequent emptying. Bills that come in the mail or other paper-based farm management material should also be col­lected in the inbox.

A regularly set bookkeeping day will help with maintaining accuracy. Every two weeks or 10 days is ideal, as this will catch most bill turn-around dates but not take too much time away from other things. Larger operations will want to have bookkeeping done more often.

The bookkeeper should start by looking at every receipt or incoming payment and decide if there is enough information to be entered into the bookkeeping system. If not, hopefully the person responsible can be tracked down and the needed information collected.

Go through the inbox, sorting the pile as to the type of attention that is needed. Bills to pay go in the “bills” pile, checks and cash from sales go in the “to deposit” pile and receipts of all kinds go in the “purchases” pile. Each will be processed differently depending on the bookkeeping system you are using, but each type of record must be entered into your system. For more on specifics of setting up a bookkeeping system, see chapters five and six in the book Fearless Farm Finances.

File receipts

Once the bookkeeping is done, the final system for paper management will be utilized: the filing system. There are several ways to file the paper records of your financial transactions. Which system you use depends on how much informa­tion you need to store, how frequently you expect to access it and your personal style.

The goal of a filing system is to make the paper copies of your transactions available when­ever you need them. With many of us using computer-based bookkeeping systems, the need to check paper files is much reduced. But, there may be occasions, even if only once or twice a year, when you need to look at a paper bill or receipt. Those without computer bookkeeping systems will need to bring receipts to the tax accountant, and of course, they need to be available if you get audited.

In setting up your filing system, you want to balance the time and complexity it takes to use with the frequency that you will need to go back and find something. If you only have to look for something once a year, a system that takes less time up-front will make more sense than a com­plex setup.

For example, one very basic system is to file all bills and receipts in folders by the month that they were paid. In this system, all of the gas receipts, the electric bill and the feed receipts from purchases made in July are put into a folder labeled “July 2014.” This system is very easy to use—as transactions are entered into the bookkeeping system, the paper records are placed into the folder. As the months change, so do the folders. The disadvantage here is that you must have a way of remembering or finding out when a specific transaction was made if you need to find the paperwork. Those with electro-nic bookkeeping systems can find this pretty easily, as long as you know the vendor name. Those with paper systems may need to rely more on memory, or take the time to flip through sev­eral months of papers.

Many businesses file receipts and bills by the name of the vendor. If you have a larger opera­tion, or do a lot of business with a few vendors, this can work well. Others file by type of pur­chase, such as “gas receipts,” “feed receipts,” and “farm store receipts.” My filing system is set up by my farm enterprises: I have folders for “sheep expenses,” “chicken expenses,” and “farm general.” This works well for me, as in my small operation I don’t have a lot of transactions every month, and I like to see from year to year how much I spent on broiler feed or chicks, for instance, and have receipts from several years in the same folder.

Those who take all of their receipts to their tax accountant every year should ask the accountant how he or she prefers the papers to be organized.

I’ve found it useful to put a lot of information into particular bookkeeping system entries, helping to avoid the need to find the original receipt or paperwork. When I buy feed, I put the price per pound and the shipping fee in the check note. When I buy chicks, I note how many I got and how much I paid per bird. Taking a few minutes to add into your system the infor­mation that you might want to know later can save you the file lookup time. This won’t have to be done for every transaction, but is useful for the ones you predict you’ll want to know later.

The most important thing in setting up a filing system is that you choose something that you will actually use. A really great filing sys­tem that is never used, with a year-old “to be filed” pile next to it, is the worst of all worlds. If you set up a fancy system and find you don’t have time to do the filing, then scale down to a basic monthly system and be happy knowing you probably won’t have to find a transaction record very often.

In running complex businesses such as farms, we must be proficient at many kinds of management systems. By taking simple steps to ensure the complete and effective collection of your financial transaction records, and then storing those records effectively, you provide the basis for an accurate bookkeeping system that contains the information you need to be a good farm manager.

Jody Padgham is the Financial Director for MOSES, and Associate Editor of the Organic Broadcaster.

From the July | August 2014 Issue

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