Good bookkeeping is vital for farmers

July 2023

JENNY MATHEWS, MANAGEMENT AND DEVELOPMENT SPECIALIST AND EDUCATOR

Business accounting is an essential aspect of any small- and medium-sized business. Some farmers manage their own finances, while others hire a bookkeeper and outsource the accounting duties. It is always the farmer’s responsibility to keep a finger on the pulse of the financial health of the business.

It includes vitally important work to manage the farm’s daily financial activities – accurate invoicing, recording tax invoices and account statements with payments made. Financial tracking, analysis, recordkeeping, budgeting and many other activities demand the farmer’s attention for the business’s sake – and for the South African Revenue Service (SARS), who will give attention to every enterprise at some time. 

Business owners who are good managers will use accounting systems to keep track of the assets owned by the business, record and analyse profit and loss scenarios, and check the cashflow, including where the spending is too high or figures that seem inaccurate. This means problems are identified and changes can be made where necessary. 

REMAIN IN THE GOOD BOOKS OF THE TAXMAN AND BANK MANAGER
Record all transactions
The government has laws in place that govern how a company must record transactions. Some requirements include supporting documentation such as receipts, invoices or other proofs of purchases. SARS requires one to organise supporting documents according to the year and type of transaction.

 Have a system that works for you. A good recordkeeping system for business transactions should include items such as: 

• A monthly record (journal) of the cashflow. 
• Expense tracking: A record of the monthly banking, including debit orders, electronic transactions and bank card charges.
• All tax invoices issued to the business must be recorded and stored safely, as they are required when SARS does an audit.
• Income tracking: Record which division of the farming enterprise was the source of income.
• The salary records of employees (permanent and casual) and the monthly spending on the business’s labour force. 
• A summary of cash receipts (daily and monthly). 
• An inventory list of everything that is owned by the business.
• A depreciation worksheet: Depreciation is considered an expense for accounting purposes, as it results in a cost for doing business. When assets such as machinery and equipment are used, they experience wear and tear and decline in value over their useful lifespan. Depreciation is recorded as an expense on the income statement.
• Keep careful documentation of all vehicle and other hire purchase accounts. The accountant needs these for compiling a year-end financial report.

Document your receipts and invoices
Proper documentation of financial transactions like purchases is important for preparing financial statements such as balance sheets, preparing tax returns and monitoring a company’s financial health. When documenting receipts and invoices, have an organisation system that tracks the VAT, zero-rated and non-VAT transactions and the source of the purchase.

Manage the cashflow
Cashflow refers to the total amount of cash that comes in (revenue) and goes out (expenses) of a company. It is vital to maintain a positive cashflow and have a system to manage it. This means a company should manage and track when and where cash is spent at all times. A company can get into a negative cashflow by having too much debt or too much income in overdue accounts receivables (unpaid monies owed to you). 

Have a strategic plan for paying all bills. Paying your bills on time is an important aspect of taking control of your financial life. Knowing when your bills are due and making a habit of paying them by the deadline can reduce your stress, save you money, boost your credit score and enable you to get lower-interest credit in the future.

Oversee and keep track of the payroll
A payroll consists of all payments to a business’s employees, including benefits, salaries, taxes and deductions. It is important to know what labour is costing the business – this applies to all permanent labour and the seasonal or casual labour force. 

• The Department of Labour requires any employer with one or more employees to register for Workman’s Compensation. 
• The onus falls on employers to make sure all workers are registered with the Unemployment Insurance Fund (UIF), and they must make sure that an employee’s contribution is deducted from his salary every month.

Make projections
To achieve long-term financial goals, small businesses make projections to prepare for the future. Business accounting provides companies with the financial insight and records to make strategic and smart projections and budgets. 

Understand tax
The taxes a company pays, is dependent on the type of business. It is important for the small business owner to build a good relationship with an accountant, to guide him through this complex business environment. 

Submit tax returns and financial reports
This is a complex environment, and a good accountant can save a farmer a big amount of money. If this area is neglected, SARS will certainly catch up and not hesitate to issue severe fines for late returns or inaccurate information.

Manage profits and losses
Profits are earnings or incoming cash, and losses refer to anything the company must pay for or outgoing money. Record the profits and losses to establish the financial health and viability of the business.

Separate your accounts
Keep your personal transactions and your farm transactions separate to avoid confusion.

Separate lines of credit
Enterprise tracking: It is important to know which aspects of your farming are bringing in the money and which divisions are costing you money. 

Balance early and often

• Check your accounts as often as possible to make sure your bank balance aligns with your records. 
• Enter payments made (expenses) as you make them and receipts (income) as you deposit them. 
• Reconcile your accounts every month when the bank issues the statement. Know where and how every cent has been spent or earned.

Avoid paper storms 
Stay organised and win the war against the mail pile and late fees: Open all mail and emails when you receive them. Record monies owed, and make payments as required. Also keep track of who owes you money. Profitability hinges on turning your physical work into an invoice, which turns into cash. Get the cash, pay your bills, save interest expenses and breathe a little more freely.

WHY BOOKKEEPING?
The regular data entry and journal entries only exist to help you run your business better, because you are better informed with accurate information. You as the farmer must stay involved in the process. Get the financial feedback you need to reinforce or redirect your management decisions. 

Lastly, keep your promises and honour your contractual agreements. Your reputation and credibility grow when you fulfil commitments. This way you can become known as a dependable, reliable and trustworthy farmer and businessperson. 

Publication: July 2023

Section: Pula/Imvula