Ziyanda Mtshiselwa-Poswa and Mzwanele Lingani of the Western Cape Department of Agriculture (WCDoA) explain why farm records, both production and financial, are essential for making the right farming decisions, and how the Department assists farmers in this regard.

By Mzwanele Lingani and Ziyanda Mtshiselwa-Poswa

Farm record-keeping is simply the systematic recording of the day-to-day information on your farm.

Why Farm Records Matter

Farm records allow a farmer to:

Plan and make decisions
Monitor the performance of the business
Budget
Obtain financing
Manage cash flow
Make financial control possible

Keeping accurate financial records will help you to compile financial statements, which will show the expenses, revenue and profitability of your business over 12 months.

The financial statements are prepared using the information of the daily transactions in your business. These statements will also show the value of assets owned by the business and the financial obligations thereof.

The Danger of Not Keeping Farm Records

Farmers – small-scale producers in particular – often do not keep proper financial records. They might lack the skills, or they do not understand how important it is to do so and what the benefits are for a farming business.

Without financial records, you are unable to draw up financial statements. This affects other essential tasks like drawing up a business plan, generating a budget, and farm planning in general.

Some farmers keep minimal records because they find it tedious and time-consuming, whereas others only keep some records, which they send to an accounting firm at the end of the financial year. These farmers will have no accurate measure of their farming business’s profitability or production costs until months after the accountant has prepared the financial statements.

On top of that, it will often be challenging to draw up accurate financial statements because some of the submitted information would be incomplete.

Also read: Building credible and investment-ready agribusinesses: Insights from industry leaders

In 2020, Thoko Didiza, the former Minister of Agriculture, Land Reform and Rural Development, said a lack of record-keeping was one of the critical factors that prevented farmers from accessing Covid-19 relief funds.

In addition to record-keeping challenges, many farmers are not compliant with tax returns, labour-related matters and Companies and Intellectual Property Commission (CIPC) annual returns. Keeping proper financial records is the only way to overcome these challenges.

Manual and Electronic Record-keeping Systems

Due to the differences between farming businesses in terms of farm size and business skills, record-keeping systems can be divided into two categories: manual and electronic record-keeping.

It is crucial to keep track of all income and expenditure, like on this Western Cape wine-grape farm.

Manual Record-keeping System

The manual record-keeping system allows farmers to record income and expenditure transactions in either a physical document or in a Microsoft Excel spreadsheet. With this system, farmers keep records such as receipts, invoices and bank statements on file; and an accounting firm captures and processes the transactions to produce financial statements at the end of the financial year.

Electronic Record-keeping System

The electronic record-keeping system uses a similar approach to recording transactions as the manual system, but it is more advanced because it involves bookkeepers and accountants. The bookkeepers capture the transactions recorded on the Excel spreadsheet in accounting software such as Pastel, QuickBooks or Sage Online.

In most cases, bookkeepers and accountants also provide added business administration services to farmers, such as submissions for VAT, UIF and provisional income tax.

Farmers, regardless of the type of system they use, will submit income tax returns based on their financial records at the end of the financial year.

Not all farming businesses can afford a permanent bookkeeper responsible for all record-keeping. In this case, it’s highly advisable to have an administrator or someone else take responsibility for keeping track of money coming in and money going out of your business. Without a dedicated person for record-keeping, there are often gaps in the financial records.

Also read: Affordable, inclusive access to finance for township-based and cooperative agro-processors

Farming is not an easy profession, and farmers often have to tackle all areas of the business by themselves, which can lead to serious challenges in giving full attention to every area.

The main reason for urging all farmers to have financial record-keeping systems in place is to ensure that they can measure the profitability of their businesses at the end of the financial year and make informed decisions.

Farm Budgeting and Financial Record-keeping

Keeping accurate and well-maintained financial records is crucial for any farming enterprise, not only for funding applications and tax purposes but also to help the farmer budget and do farm analysis, which are two essential management tools.

The Most Important Budgeting Tools in Farming:

Enterprise budget
Partial budget
Whole-farm budget
Cash-flow budget
Capital budget

These different types of farm budgets all have specific uses, but a cash-flow budget is the one that farmers use most frequently.

A cash-flow budget is a plan that indicates monthly expenses (cash outflows) and income (cash inflows). It shows what the farmer has, and the expected expenditures and income in the future.

The cash-flow budget allows farmers to identify their spending and saving habits to achieve financial objectives. It enables the farmer to know in advance if there will be a financial deficit so that they can make a plan in time.

A cash-flow budget is there to help a farmer stay far away from debt or to help them escape debt.

Government Intervention to Assist Farmers with Financial Record-keeping

In response to the challenge of proper record-keeping in the local farming industry, the Western Cape Department of Agriculture (WCDoA) established a Financial Record Keeping Programme (FRKP) to assist farmers in developing systems. It also provides farmers with business administration services such as registrations/submissions for legal entities, VAT, UIF and the Compensation Fund. At the end of the financial year, farmers are provided with financial statements to help them determine their businesses’ financial performance and make informed decisions.

The WCDoA categorises farmers into two categories, manual record-keeping and electronic record-keeping, based on their financial know-how and the availability of financial record-keeping systems.

The farmers who use the manual system are those who are still learning about keeping proper financial records. The officials of the WCDoA assist farmers in setting up a system, and help to teach them how to record all transactions.

Farmers at an advanced stage of financial record-keeping are also assisted with business administration services and management and financial statements.

Tips for an Effective Financial Record-keeping System

Acquire the basic tools you’ll need, such as an invoice book, a cash receipt book and a calculator.
Acquire a financial recording book or a spreadsheet software program such as Microsoft Excel to record transactions and describe the items you buy and their quantities.
Keep all your receipts and invoices in a folder. When you travel, have a filing sleeve or envelope in your bag or vehicle in which to place these documents so they won’t get lost.
Open a business bank account to separate your business transactions from your personal transactions.
Obtain documentary proof of every transaction regardless of how much money is involved, even for informal transactions. Provide proof to every person that buys something from you, and request proof from every person who sells something to you.

Some Highlights from the Financial Record-keeping Programme

Farmers can track their income and expenditure patterns, and can view their businesses’ annual financial performance through financial statements they receive.
The funding application processes have become more accessible as farmers can meet requirements like tax status and management and financial statements.
Farmers’ businesses are now compliant as they can file or make submissions to institutions such as the CIPC and SARS.
The WCDoA has successfully conducted capacity-building training with the Department of Employment and Labour, the Small Enterprise Development Agency and SARS.
Many businesses involved in the programme have won awards at a national level.