Image provided by: University of Oregon Libraries; Eugene, OR
About Capital press. (Salem, OR) 19??-current | View Entire Issue (Dec. 14, 2018)
Friday, December 14, 2018 CapitalPress.com 9 What to keep in mind when choosing an accountant By PADMA NAGAPPAN For the Capital Press income on a cash basis, which is most benefi cial for small farms, or on an accrual basis. Trust is critical in a rela- tionship with your accoun- Cash or accrual? tant, especially because With the cash basis some polls say you trust your CPA more than you method, what you receive do your own spouse, so is income and what you spend is a deduct- choosing an accoun- ible expense. Even tant calls for care- if you buy fertilizer ful, deliberate a few months ahead decision-making. Some growers of when you need it, with small oper- you can expense it. ations may only With accrual, money need to talk to their paid out early would Erik accountant twice a show as pre-paid on Gillam year, whereas oth- the balance sheet. ers may need ongo- While this works ing consulting. for tax purposes, when it “Choose someone who comes to evaluating your will return your phone calls business, the accrual basis and offers good commu- works better to give a nications,” suggested Erik true picture, he cautioned. Gillam, a CPA and partner One mistake many grow- at Aldrich CPAs who leads ers make is using cash the fi rm’s ag business prac- basis throughout, because tice. He is based out of Port- that’s the way it’s always land, Ore., but the fi rm has been done in their family, offi ces in California, Ore- or because it’s easier, but gon, and Alaska. “You want it helps to pay attention to an ag CPA who knows the such nuances, he said. industry.” Farm buildings qual- An accountant can help ify for bonus depreciation, farmers and ranchers tap so farmers can accelerate tax benefi ts, and decide if it and expense it all in one it’s best to determine your year, if preferred. “This is not something a lot of people take advantage of, because their accoun- tants may not know it,” Gil- lam said. Another useful strategy an ag accountant can advise you on is farm income averaging, where you take income from the last three years, and average out the taxes you pay over the three years, balancing slow years with better years. Unique deductions “I would look for an accountant who under- stands my business and the cyclicality of it, and how the cash fl ows work,” he said. “Knowing the tax benefi ts will help clients, so you don’t miss out on ag specifi c deductions.” For example, with citrus or avocado, an accountant who understands commod- ity prices will better under- stand the operation. “It also helps to choose someone who has rela- tionships with ag bankers because when you’re start- ing out, the model may be cash heavy at the front so you want a banker who understands that, and what an accountant who has a relationship with an ag banker can do is help you build trust with the banker — since the banker will know and trust the num- bers they present on your behalf,” Gillam explained. Experienced accoun- tants can also help the busi- ness transition from one generation to another, help the new generation get a better handle on the opera- tions, and sort out confl ict- ing issues among family members. Due diligence Many times, growers choose a CPA they went to school with, or simply because they know them through family or friends, but it helps to do due dili- gence, he said. For farms in remote areas, cloud based account- ing technology enables someone outside to do your accounting for you regard- less of where you’re based, so it frees up your time to focus on your business. It would help if the accountant came out for farm visits to better understand the busi- ness, and build a good rela- tionship, but it’s not neces- sary if you only need them occasionally. It can help with some operations, as in the case of a growers’ co-op in Idaho that fl ew Gillam out recently to meet with its board, which wanted insights on how they’re doing fi nancially, and to have him evaluate the internal safeguards they have in place to ensure no one is stealing from them. What to look for when choosing a bank The relationship farm- ers or ranchers have with their bank is one of the most important ones for their business, and can provide a stepping stone to success. When it’s time to decide which bank to take your business to, it helps to keep certain key points in mind. Have a good idea of the lending products the bank offers and if these work well with your needs, such as short-term working capital loans and long-term mort- gage loans. Ascertain if the bank will fi nance construction projects and equipment purchases. Product selection “Make sure the bank has a product selection that works best for you,” said Allison Paap, an ag banker in Southern California. “Be sure you’re satisfi ed with the level of expertise they have, that they understand your operation and its histori- cal cash fl ows, beyond the forms you submit.” “It’s a long-term relation- ship, so make sure you’re comfortable with them and that they will work with you in the long term, not just for that particular transaction,” Paap said. “Ag is a cycli- cal business and the banker needs to understand it.” For growers of highly seasonal products, she advises ensuring the loans are structured properly. Monthly payments may be hard for growers who get the bulk of their sales over a couple months a year, such as fl ower growers for exam- ple, so in such cases annual payments will work better. But in the case of a dairy, which gets monthly pay- ments from the cream- ery, making payments each month can work better. Key questions When seeking construc- tion loans or long-term loans, some lenders may not be able to fi nance it with only farm property as collat- eral, and will look for other assets, so these are questions to ask in initial meetings. She emphasized the importance of maintain- ing good records that show a history of farm income, and if you have a day job or other business interests, then records of income streams from those avenues, too. It will help to work with an accountant to stream- line these records before approaching a bank for a loan. Lenders will also often ask for production reports, which will help determine projected income for a par- ticular grove or block of acreage on the farm, so growers will need to piece together production fi gures on yield and prices for each. Loan appraisers will evalu- ate these reports to see if it’s viable to extend a loan. “If they want a $3 million loan and the grove produces about $10,000, then the pro- duction report will help determine if they can repay the loan,” Paap said. She cautioned against using short term working capital loans to buy long- term equipment, which can place farmers in tight sit- uations, since equipment loans tend to be for peri- ods of three, fi ve or seven years, paid back over sev- eral seasons. Leading indicators for 2019 show that interest rates will increase, so it’s import- ant to have a clear under- standing of your budget and what the cost of borrowing will be, Paap said. AgFinc18-4/104 AgFinc18-4/104 By PADMA NAGAPPAN For the Capital Press
