BUSINESS TIPS
From our many years of collective experience assisting and advising farmers with their business accounting we are able to come up with some hot tips, which we hope will be useful for everyone, no matter how big or small your rural business.
Cashmanager Rural – End of financial year checklist
End of financial year checklist
When the new financial year is under way, you should start thinking about getting the financial information for the previous year ready for us to use for preparing your financial returns.
If you haven’t already done so, invite us to log into your Cashmanager RURAL online database.
We can then access reports such as the Accountants Annual and Accountants Livestock Rec and determine what information we need from you.
We will supply you with an end of year questionnaire to complete and some of the questions can be easily answered if the information in your Cashmanager RURAL database is correct.
Things you can check
1. Is your transaction list up to date?
Make sure all transactions have been entered up to the last day of your financial year.
2. Have you reconciled all bank statements relating to the financial year?
Nothing should be left unreconciled except for transactions dated in the new year.
3. Check for unreconciled transactions
From the Transactions screen, click on the Filter button, tick the Unreconciled box and click OK.
If transactions appear that are dated in the year you are balancing, they may be duplicate or un-presented transactions.
They need to be either deleted or reversed.
To correct any unreconciled transactions from the previous year, have a look at How to correct a duplicate transaction.
4. Have you entered all accounts payable and receivable?
In Cashmanager, these are transactions that are recorded in the first month(s) of the new financial year.
The items have a transaction date that matches the bank and are allocated to the financial year they belong to.
For example, you receive an invoice from your fuel supplier dated in June (2017 year) and you pay it in July (2018 year). You need to show that though the transaction was paid in July, it relates to the 2017 financial year.
5. Check the consistency of coding
Make sure that you use the same codes for the same types of transactions.
Click on Reports – Analysis by Code. Check that the transactions make sense for the code they are allocated to.
If a transaction needs re-coding make a note of the transaction date, the GST inclusive amount and its code.
Locate the transaction, edit it and change the code.
6. View the Accountants Annual Report
Make sure that it is balanced.
7. Is your Livestock Year End Tally correct?
From the Transaction screen click on Reports – Accountants Livestock Rec.
Livestock tallies do matter so be careful that the stock transactions (sales and purchases) have been coded correctly and that tallies have been recorded.
8. Run a Springclean
From the opening screen, click on Tools – Springclean.
If there are errors, try and fix them.
If you have any queries, please do not hesitate to contact our team.
Riparian planting is tax deductible
Riparian planting and management is the restoration, enhancement and the construction of wetlands, rivers or streams inside a property.
As this type of planting is recognised as a method of erosion control and water protection, farmers are permitted a deduction for riparian plantings under the 2007 Income Tax Act 2007, Section DO 2 (2) (c).
The section permits a deduction for expenditure “in planting or maintaining trees or plants” for the purpose of “preventing or combating erosion of the land, and/or providing shelter to the land and/or preventing or mitigating detrimental effects on a watercourse or body of water from the discharge of farming and agricultural contaminants”.
This section overrides the capital limitation test.
All riparian planting costs ARE deductible under Section DO 1 (1) (f).
Should you require any advice on this topic, please contact our Farming Growth team.
Understanding your profit
“I’ve made all this profit – so where’s it gone?!”
Does this sound familiar? It’s probably the number one question we are asked and usually comes about when the tax needs to be paid.
In simple terms, profit is not what’s left over at the end of the day in your bank. That is cashflow. The two are not to be confused as the same thing.
Profit tells you how you are performing, but it is possible to manipulate it so it needs to be viewed along with other indicators to give a real understanding about business performance. For example, if you choose not to put on fertiliser this year and your profit goes up compared to last year, does that mean you are performing better? Not necessarily. If you turn another few paddocks into baleage and pay a contractor to do it, your costs go up and your profit goes down. Does that mean you are performing worse? Not if there’s a stack of supplementary feed sitting in the corner of the paddock for use in the winter.
Profit (with some adjustments) is also the amount the IRD look to levy tax on. They don’t levy tax on your cash surplus. If they did, they would never collect any taxes as I’m sure we would all look for ways to spend or invest it. Perhaps the best way to understand profit is by looking at a simplified rural financial business model.
But first you need to understand what the balance sheet is all about.
Your assets are only funded in one of two ways. If they are funded externally they are called Liabilities. If they are funded internally, that’s Equity.
Equity is the balancing figure. It’s what would be left over if you sold all your assets and paid back all of your liabilities. The goal is to increase equity and reduce liabilities.
There are three ways to increase your equity:
Your assets together with a labour contribution generate income.
Once you deduct costs from income, that gives you your Cash Profit
In a side calculation, the IRD adjust cash profit in three main ways to determine the income you pay tax on:
Once these three adjustments are made, we have our Taxable Income. Depending on how you allocate it amongst the owners you will pay a rate somewhere between 10.5% and 33% of tax on this profit.
Going back to the cash profit, we then need to deduct a plethora of other costs.
What’s left over after all of these adjustments is cash surplus or deficit. If it’s a surplus, your bank account looks better than it did the same time last year. If it’s worse your bank account will obviously be worse off and next year your interest cost will go up, unless you inject more funds personally to cover the deficit.
That explains why tax profit is so different to cash profit and also explains why the IRD don’t levy tax on your cash profit.
The best way to plan for all of this, and to know where you are headed, is to do a budget. A budget incorporates all of this and tells you what is going to be left over at the end of the day. If you’re not happy with what it’s telling you, then now’s the opportunity to make a change. Leaving it until the end of the year is obviously too late.
If you want help with your budgeting, then get in contact with us. We have developed a budgeting service to help you plan for the year ahead. You’ll feel more in control of your business if you do some planning at the start of the year.