Most farmers have their cashbook set up by a bookkeeper or themselves, designed to track what matters most for daily operations. However, when working with your consultant, some may notice that we have mapped their incomes and expenses to different codes. While the chart of accounts in the farmers’ cashbook is shaped by compliance and practical management, the consultant’s version is intended to highlight trends, uncover opportunities, and promote strategic planning. In this article, we will explore the reasons behind these differences and how they can add value to your farm business.

Income

In many horticulture businesses I have worked with, all fruit and vegetable income is categorised as general sales, without further breakdown. This suits farmers because it simplifies accounting by avoiding the need to separate income into different categories. Not just in horticulture: Broadacre income mainly comes from grain sales across previous and current seasons. From a tax perspective, income is income, regardless of its source.

Conversely, farm business consultants aim to distribute income across individual crop lines as evenly as possible. This serves as the starting point of the analysis, outlining which crop produces the highest income. Additionally, categorised income provides an internal average for each fruit and vegetable, enabling more effective negotiations on selling prices.

On the other hand, a broadacre consultant will try to distinguish income from the current season’s grain from that of the previous season to provide an accurate view of the current year’s profitability without being skewed by the previous season’s grain income.

Expense

The expense section is the most diverse in the cashbook, with many naming conventions used. Furthermore, a new code will be introduced solely for previous tax purposes. For these reasons, we group some expense codes with our convention to compare apples to apples.

Some business owners do not get paid in wages; they take a drawing instead. That is why we introduce the imputed family labour to provide an estimate of what it would cost if you hired someone to do your job and paid commercial rates.

Another key point is that many farmers classify fertilisers and chemicals as the same expense. Again, while this saves time, it does not give you a clear picture of how much you spend to improve your crop’s productivity. You might be overspending on fertiliser that you do not need.

All this work will identify your pain points, providing a starting point for reviewing your expenses.

Manual journal

Manual journal entries are vital at tax time, helping accountants fix discrepancies, update records accurately, and run accounts efficiently for tax purposes. I saw it myself during a business tax return session, when the accountant had to shift all the business income to personal income because the drawing from the business exceeded the income.

However, these entries can create a layer of complexity and potential misunderstanding. Your consultant might find it hard to understand the changes made to your accounts without direct contact with your accountant, or if the note doesn’t clearly explain the reasoning. This lack of clarity makes it difficult to monitor actual performance and obtain an accurate estimate of your true business profit.

Manual journal entry highlights why close collaboration between consultants and accounts is essential. By working together and encouraging transparency, consultants can gain a clear understanding of the business’s financial story, ultimately providing better support and guidance to farmers.

Ultimately, splitting and grouping income and expenses offer new insights that promote growth, security, and smarter decision-making. Additionally, a manual journal entry might be the way for us, as consultants, to collaborate with your accountant, which further increases our confidence in providing you with customised insights about your business.