Bookkeeping Basics For Flower Farmers
You can’t manage what you can’t measure, as they say. Until you gain at least a rudimentary understanding of bookkeeping, you won’t be able to fully understand what’s going on inside your business.
But let me put it this way: bookkeeping (or at least using the data you’ve gathered through bookkeeping) is fun. I never in a million years would have thought these words would come out of my lips. But the more I learned to keep good books, the more my business was able to grow.
First off, you may be wondering if you need a bookkeeper, how to find one, what you can expect to pay, and what level of bookkeeping services you need. Let’s tackle some of these questions before going through an overview of the main financial statements it’s necessary that you understand as a small business owner.
Bookkeepers For Flower Farmers?
I’ve been asked how to find a bookkeeper that specializes in farming, flower farming, or farmer-florist operations. The truth is that these kind of specialists are hard to come by, and it’s really not necessary that you find one. What’s more important is that your bookkeeper:
has an understanding of small businesses and entrepreneurs and service-based businesses
that they’re open to learning a bit about farming
and that they help set you up to really understand your numbers
There’s a difference between setting up your books just to be able to pay your taxes - known as, you guessed it, tax accounting, or setting up your books to be able to best make decisions about your business. This is known as managerial accounting. You bookkeeper had better be on board.
Service Levels
At this point in my farm’s business, I pay my bookkeeper $300/month, and she reconciles my books each month, helps me troubleshoot any issues, offers quarterly meetings to go over my financial health and tackle any questions, and all the year-end tax help I could ask for. This is a fairly common package. If you’re looking to spend less, you can often find someone to work with you on more of a quarterly or annual basis while you take on reconciling your own books. You can expect to pay anywhere from $40 - $65/hr for this kind of service. Just remember that if this isn’t a skillset you’re keen to master, it may be worth hiring for an extra level of service. Bookkeeping professionals also won’t love fixing your mistakes month after month, so be careful what you take on.
The P&L
The P&L is like the movie version of your farm over the year in dollars. It changes bit by bit with every purchase and expense you incur and tells (part of) your farm’s story in numbers. If you’re going to take a stab at learning your numbers, this is the place to start.
The Chart of Accounts
I use Quickbooks (online), and The Chart of Accounts is what Quickbooks calls the list of both income and expense categories that populate your P&L. In a later post I’ll share what my main income and expense categories for my business are. The general idea is that you want to create specific enough categories that they’re meaningful to you, but not so specific that bogs you (or your bookkeeper, or your accountant) down.
The Balance Sheet
If the P&L is a video of your operations, showing your ongoing sales and expenses, the balance sheet is a photo that depicts the health of your business at any single point in time. The more mature and complicated your business gets, the more your balance sheet will show and the more important it will become. When you own no more than a pitchfork and have invested only your time into your small business (i.e., you didn’t take out loans or invest your savings), there won’t be much to look at or much to prove. On the other hand, when you’ve invested in some machinery, taken out a bank loan, and built up some equity in your business, the balance sheet will show how all these elements interact with one another to give a sense of the net worth of your business.
The three main components of the balance sheet are assets (cash and savings, money owed to you, and items that you purchased in the past but continue to hold economic value into the future), liabilities (of accounts due, debt you’ve incurred, loans, and credit card balances), and owner’s equity (the amount of wealth you’ve built from your business). These three components fit together in the following equation: Assets = Liabilities + Equity.
Looking at either the P&L or the balance sheet in isolation can give you a very skewed view of your business. You could have a very good year in terms of net profit from your business operations, but you may have taken on substantial debt to get the business to generate income. To understand the whole story, you need both tools working in conjunction.