Nietzke & Faupel, P.C. has developed unique services tailored to meet the specific needs of agricultural producers. To run an effective agricultural operation today takes a team.  Among today’s agricultural teams finance institutions, employees, insurance agents, and estate planners, equipment suppliers, and more.  Of course, your Certified Public Accountant is also a critical part of that team.

Your CPA can help you maintain a quality accounting and bookkeeping system. Having the right numbers is critical to managing any business. However the majority of farms today still use Cash Basis accounting systems, which are not adequate in today’s agriculture environment. We highly recommend our Accrual Basis Financial Statement Services.   These specialized statements provide key ratios like; Return on Equity, Current Ratio, Debt/Acre, and Net Worth/Acre, as well as a true look at your operation.

Good accounting, however, is not simply a good set of books and the right numbers.  You also need to be able to interpret those reports and take steps that are appropriate.  Our accountants will work with you in a proactive way and help you identify problems that need to be corrected. We also review your statements for opportunities to increase the value of your operation.

Our firm goes a step beyond – we enjoy visiting the farms we work with.  Meeting members of your team, seeing your equipment and your operations first hand, helps us understand your business. 

Nietzke & Faupel, P.C. offers help in interpreting your reports and analyzing your business.  We offer forecasting, business plans, succession planning, estate planning, and more. 

Accrual Basis is a term that is becoming more familiar as farmers attempt to get the management information they and their teams require. The Farm Financial Standards Council (FFSC) recommends this type of accounting for all farmers. Farm Futures magazine used this method to judge its top 100 best managed farms.  In addition, banks and other lending institutions are increasingly requiring the use of accrual basis financial statements.

Jeff Bushey, one of the partners of Nietzke & Faupel, P.C., currently serves on the Farm Financial Standards Council (FFSC) and is helping to shape the direction of these important agricultural standards.

Currently, a vast majority of agricultural producers keep their records using the method of accounting referred to as cash basis. Under this system, income is recorded when the cash is actually received, and expenses are recorded as of the date the cash is paid. There is no attempt to relate or match the income received with the expenses incurred. If you hold crops past the end of the year, or pre-pay expenses for tax planning purposes, you will have misleading profit figures for the year. 

Therefore, the cash basis system does not generate an accurate measurement of profitability for a period.  However, since the cash basis method is the simplest approach and it provides excellent tax planning opportunities, most farmers will want to continue to keep their books using the cash (or income tax) basis.

Nietzke & Faupel, P.C. has developed Accrual Basis Accounting Financial Statements to use in conjunction with your Cash Basis accounting system.  That gives you the benefits of both systems.

Nietzke & Faupel, P.C. recommends the following for agricultural producers:

Ø     Maintain a complete cash basis, double entry accounting system. This can be a very simple manual system, or a more sophisticated computerized system.  The cash basis system is the easiest way for producers to keep their books, and it also retains the important benefits of income tax planning and preparation.

Ø     Adjust to accrual basis on a regular schedule.  We highly recommend our monthly accrual statements.  Of course we offer these statements quarterly, semi-annually and annually as well.   While you can save a little by choosing quarterly statements, or even less often,  you will not see an accurate picture of your operations when you need it most which is when you need to make critical decisions.  These decisions don’t come conveniently at the end of a year or the end of a quarter.

Ø     Complete a forecasted budget on the accrual basis for the next year.  It is very important to have a financial plan documented before you being planting. This will assist you in management decisions as well as in securing financing.

“Numerous studies have demonstrated that strictly cash basis analysis can lead to lags of two years or more in recognizing profitability problems. Cash basis accounting can also delay recognition of profits during periods of business growth and recovery.  Such a delay in recognizing profitability problems is due to the length of the business cash conversion cycle, i.e. the time from the start of the production process until cash is finally received form the sale of the output. The lack of reliability of cash basis income statements as a measure of business performance was further documented by a research study at the University of Illinois, which analyzed income information for 151 cash grain farmers over a six year period.  It found an 85% average annual difference in net farm income when measured on an accrual adjusted basis versus a cash basis, and in individual cases, up to a 400% difference.”

Farm Financial Standards Council (FFSC)