The End of Year Paperwork Scramble

The filiing cabinet where I keep all our records.

On the farm, the end of the year is a hectic time because it signifies the end of the business year.  Much time is spent reviewing the past year’s expenses and income and compiling those numbers into reports.  Farming is a business,  it requires that we occasionally take time  to review such things.

Usually some time in November we will receive a big packet in the mail from our bank.  It includes two things.  A cash flow statement and a balance sheet.  They include figures we used last year, and blank spots to fill in for this year.

The bottom stack is expenses. The top stack is income. Isn't that just life??

The cash flow statement is a prediction of how much and when money will be spent and received over the next year.  Basically, a budget.  It is used to determine how much money we will need to “fill in the gaps.”  Some months on the farm, we spend way more than we bring in, and vice versa.  For the months where we are short of money, we use an operating line of credit at the bank to ensure that our bills are always paid on time.

So, we must review how much grain we have in the bins and when we will be selling it, same with the cattle.  And, we also have to predict how much we will be spending on things like feed and seed and when.

Then, the balance sheet.  It tells us how much our assets are worth and weighs our debt against that.  We must list out all of our livestock, land, grain, and equipment as assets, and then list out each loan we have against those things.  The difference between what we own and what we owe is called equity, or net worth.  Net worth is what the bank uses to determine how much money it is willing to loan us.  It also helps us determine how much money we are comfortable borrowing.  We won’t borrow more money than what our assets are worth.

Stuffed to the max! Glad I get to clean it out and start new.

So, as if that wasn’t enough to worry about completing, there is also tax planning to worry about.  We need to make sure we have all of the expenses we incurred and income we received recorded and compiled to take to the accountant.  He will then help us sort through it, and determine whether or not we should spend money or find some income before the end of the year, to keep the tax bill within reason.

My relationship with our accountant is definitely a love-hate relationship.  I hate the complexity of the tax system, and I love that he understands it so well and keeps us on the straight-and-narrow with Uncle Sam.  The accountant will also find helpful things in the tax code, such as rules that allow us to deduct IRA investments or health care expenses. He’s an excellent source of guidance when it comes to paying self-employment taxes and social security.  He’s pretty good at finding mistakes that I have made throughout the year in coding expenses and income too.

This is how I feel before paperwork.

This is how I feel after paperwork.

My relationship with bookwork, in general, is love-hate.  I dread the thought of sitting down and muddling through all of the paperwork and entering things into the computer, but once I get into it, I love knowing where we sit financially.  Sometimes it is comforting to see where the farm is financially, and sometimes it is concerning.  Either way, all the paperwork is a necessary evil on the farm, and I’m glad to have professionals like our accountant and banker to help us out with all of it.


4 responses to this post.

  1. Posted by Wayne on January 6, 2011 at 3:20 pm

    This is a great summary and excellent example for others. Where is your scanner and paper shredder? The file cabinet could be replaced with a small storage device for e-files. Maybe an idea for the “elf on the shelf”!

    • Wayne, I may be technologically capable…but I’m still a little old fashioned. I still write paper checks and use paper files. Not sure I’ll change that habit anytime soon. 🙂 Maybe someday though.

  2. Posted by Brenda on January 6, 2011 at 6:36 pm

    Very intersting Liz. I kew there is alot of paperwork but not that much. Now i know why Grandma Audrey hated tax time. Way to go Liz

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