In 1931, Ohio State University extension professor Dr. C.R. Arnold wrote in the Journal of Farm Economics, "Probably no other single phase of extension work in the agricultural economics field has received as much emphasis in the past as farm accounting … during the last generation, farming in our leading agricultural sections has changed from a largely self-sufficing industry where the activity of the family had been directed chiefly toward supplying the material for the household to a strictly business enterprise. As such, agricultural extension has a charge to the improvement and education of farmers in accounting and financials methods."
In the 90 years since that article was written, production agriculture has undergone another material shift. If the farms at the turn of the 20th century were self-sufficing, and the farms of the mid-1900s were business enterprises, the farms of today, with their vertical integration and international reach, have the look of corporations. As such, how farmers view and manage accounting must change too. While agriculture extension has and continues to provide solid financial resources to teach farmers "in-house" accounting and finances, with growth a farm or ranch must determine if and when to seek outside help. That outside help may mean outsourcing – or farming out – the financials.
When should I consider outsourcing?
When considering outsourcing on a cattle operation, the first thing that comes to many folks' minds is using a custom farmer. If you are a cattle rancher, should you do your own hay work or outsource it to a farmer? Maybe on your operation you do, and maybe you don’t, but you’ve probably asked yourself these questions: Does it make financial sense to own a swather and baler equipment? Do you have the time to manage cutting and baling? Do you know a farmer who could do the work better?
You can apply a similar process and rationale to decide whether to outsource financial work. It's not that you can’t do your own financials, it's that it makes more sense to allow another person to do them. Farm finance writer Mike Wilson says, "Most farmers I know don't want people to know when they outsource their marketing or taxes to the experts. First, they don't want you to think they're lazy for not doing them themselves. Second, they might not want you to know they'd rather give the job to someone else. But the fact is, on large-scale (or even medium-scale) farms today, those who spent money on outside expertise usually find it's money well spent."
Advantages of outsourcing financials
Julie Murdoch, outsourcing senior management consultant with Forvis, a professional services firm emphasizing the agricultural industry, proposes five reasons a farm should consider outsourcing financial functions. She suggests a farm or ranch consider outsourcing financial tasks for the following reasons:
- Gain financial and operational efficiencies. Murdoch says, "Some agribusinesses find themselves with a ‘shoebox of receipts’ at the end of the month that must be organized and interpreted. An outsourced accounting solution can handle the daily and monthly tasks while putting together the information in an easy-to-read package."
- Improving financial data quality and reliability. Murdoch says, "Third parties such as bankers often rely on financial information to approve loans, so by outsourcing accounting functions, you can have confidence in your financial information's accuracy." Additionally, Paul Neiffer, a farm CPA says, "Outsourcing financials can be particularly important, especially in areas like payroll because farmers can incur more IRS penalties in payroll than any other area of accounting."
- Make smarter use of limited resources. Murdoch says, "For many farmers, paperwork and related tasks are a dreaded component of running an agricultural business. With limited hours in a day, there's thankfully one area that can be easily outsourced: accounting. Freeing up your capacity enables you to concentrate on your core business." Neiffer agrees, saying, "Outsourcing financials allows a farmer to spend more time doing what they do well versus spending time on low-level accounting."
- Bring new, proactive ideas to the table. Murdoch says, "When someone is heavily involved in the details, a fresh set of eyes can benefit. A trusted adviser can review the financial information and ask the right, unbiased questions."
- Tap into important technical expertise. Murdoch says, "Outsourced accounting professionals deal in the accounting world day in, day out. Farmers can rely on trusted advisers for relevant news, insights into changing guidelines and detailed knowledge of new regulations without getting bogged down in the details themselves."
Before one decides to outsource all or some of their accounting functions, some disadvantages should be considered.
Disadvantages of outsourcing financials
- Cost of the service: Ensure the service's cost is worth its value to your business. Neiffer says, "Outsourcing simple accounting can easily approach 1,000 dollars a month. A part-time CFO may run four to 10 times that amount."
- Less control: If you aren't in the financials day in and day out, it can be easy to overlook problems. Ensure you hire someone 100% transparent with their work and your data.
- Accessibility and timeliness: Outsourced financials may mean a longer time answering questions or investigating issues than an "in-house" bookkeeper. However, Neiffer says, "While timeliness used to be a bigger issue, with a good Wi-Fi connection there, it is rarely an issue today with a reputable firm."
When it comes to outsourcing financials, it's not an "all or nothing" approach. Today, most operations outsource at least some of their financial work. Neiffer recommends that producers consider outsourcing at least some of the following:
Accounting tasks to consider outsourcing
- Tax preparation
- Payroll, either in real
time or after the fact, for filing payroll reports
- Accounts receivable and accounts payable
- Accounting services that lead to an actual accrual basis set of financial statements
- Bookkeeping and bank reconciliation
- Part-time CFO services when a farmer has good accounting records but needs support understanding them
The last 90 years have certainly changed how producers operate, and the next 90 years will likely continue that trajectory. Changing how one operates also means changing or at least considering how the agricultural business is managed. Outsourcing financial and accounting might be one way for producers to begin seeing their operations not just as a way of life or doing what has always been done but as a viable, relevant and growing business.