Donovan Burgess farms on a medium-scale family farm that he inherited from his father in Indwe in the Eastern Cape. Together with Tembelani Dyantyi, his operations manager, he farms cattle, cabbages, spinach, potatoes, oats and maize. Donovan says the most important thing for any farmer to understand, especially when just starting out, is the importance of hands-on bookkeeping.
The Limitations of Annual Financial Statements
Annual financial statements are relatively useless to you when making farming decisions. You cannot make critical day-to-day and medium-term planning decisions based on the financials you get from your bookkeepers once a year. They are essential, of course, for the bank, your creditors and your tax affairs. But they are not your most essential tool.
Even a three-, four-month financial snapshot is not good enough. You need to be on top of the money you spend and the money coming in all the time, in real time. Otherwise you can end up with runaway accounts and other problems.
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Capturing Financial Data and Setting Up Systems
To make informed farming decisions, you must capture your financial data, and every farmer must decide what system works for him or her. So, one of the basics, of course, is to keep all your slips – invoices, receipts and other documentation. I remember my father used to throw them all in a box and take them to his bookkeeper once a year, but the problem with relying only on that system is that you won’t have a grip on what’s happening on your farm.
You need baseline information, and you have to come up with a system of capturing that information. A farmer needs to know how much money he or she is spending; for that, you need cost centres.
Understanding Cost Centers and Production Information
When you plant maize, you have to know how much you spent on maize the previous year. But you also need to know how much you harvested. And how much money you made or lost. You want to get to the point where you know how much it costs you per hectare to grow your maize. That’s the little kernel of information you need to decide on what you can spend money.
You have to say, I’m doing maize. I’m doing broiler chickens. I’m doing cattle. And then you’ve got overheads that you allocate to specific cost centres. You must think about the information you need to make your decisions, and that information is not only financial.
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Practical Recording Systems
To have this information, you have to have a system to capture that information, and an old-fashioned analytical cash book is an excellent place to start. The modern digital version of the analytical cash book is an Excel spreadsheet, but the principle is the same. You write all your expenses down and allocate them to different columns, so you get a running total of what you’ve spent on what.
There are various accounting software programs, like Pastel and Sage, that you can use to do this, but I find they have limited use because you never really learn how to use all their features effectively. So you risk putting in a lot of effort and still not getting the information you need.
Personal Responsibility in Financial Management
The bottom line is that no farmer can hand over the basic responsibilities of financial management to someone else – and even if you have someone who helps you, you should still check the books to ensure the captured information is correct. You are on a slippery slope if you don’t know when to stop spending.
Every farmer must have a simple and consistent way of recording their expenditure on their production. As a farmer, I know how difficult it can be, because you get busy and things fall through the cracks. You come back from fighting fires at 3 am, and yesterday’s slips are still in the ashtray in the bakkie, and that’s bad because those are expenses you don’t record.
Practical Tips for Better Financial Tracking
The other thing is to try to minimise the use of cash. Try to pay for most of your transactions with a bank card, because then you have everything on a statement. With cash, you have transactions outside your bank account, which can trip you up. You end up with a false picture of your expenditure.
Also read: Race on for young farmer tax compliance
When to Use Professional Help
I am not saying that bookkeepers, auditors and financial people are unnecessary. They are fantastic partners if you can afford them, but it depends on what kind of farmer you are. If you are one of the mega farmers, you have whole offices that run these things for you. But if you are a small farmer or you’re just starting out, you have to do the basics yourself – until you are big enough to afford the salary of a skilled person who can help you or take over the job from you.
What Bookkeepers Are Good For
You do need the help of a bookkeeper, however, for things that fall outside your day-to-day financial management – things like loan accounts, financing big assets and depreciation on equipment. You need a bookkeeper to help you write off bad debts, record depreciation, and keep you on the right side of SARS. All this can be looked at once a year.
The Key Lesson
But that won’t help you with your day-to-day farming decisions. My biggest lesson in farming was learning how important it was to keep my finger on the pulse of my income and expenditure. And that means I have to be very disciplined about sitting behind my laptop and recording my day-to-day transactions.
