Most growers know to set aside time to consult with their accountant during tax season but strategizing challenges as they arise throughout the year is undeniably the shrewder practice. Such planning tactics can allow for the mitigation of surprises and cash shortfalls during harvest. This best practice of ongoing proactive planning lets growers make beneficial financial choices that protect them against sudden change.
Being proactive and utilizing the offseason to get ahead allows growers to develop long-term tax strategies. Regional ag accounting experts Grimbleby Coleman CPAs recommend following these smart first steps to establish a strategy.
Updating estate plans: Real estate acquisitions and changes to health, income, residence, relationship status or family (new children/grandchildren) are occasions that warrant an update.
Maximizing retirement plan contributions: Maximizing your contribution reduces income tax now and saves for the future. Be sure to ask your advisor what plan type and options make the most sense for your business.
Investing in industry-specialized software tools: As your revenue increases, specialized software is money well spent. The right software can aid project management, profitability, benchmarking, reporting and tax preparation.
Reviewing capital gain transactions and assets: Balancing cash flow needs with the timing for taxable income is essential. For example, it might make sense to delay closing capital gain transactions until after year-end or structure your 2022 transactions as installment sales so that gains defer past 2022.
Staying current on proposed tax legislation: Review areas impacted by proposed legislation as well as opportunities and tax relief options. When tax laws change, speak to your accounting team about whether or not there are steps to take.
Look Ahead Often
Falling behind on accounting is another habit that growers can no longer afford. We advise growers to look at their financial “big picture” weekly rather than monthly or quarterly. Many of our clients forecast cash flows with best-case, worst-case and most-likely models.
Growers should know and anticipate the following for cash flow planning:
- Any upcoming significant expenses (buildings, machinery, equipment, vehicles, computer software, etc.)
- Payment for this year’s crop or payment coming in from last year’s harvest
- Labor needs and costs (wages, overtime, PTO, insurance, taxes, expenses, benefits. etc.)
- Vendor payment terms (e.g., are payments due in 15, 30 or 60 days?)
What starts as a “tax question” often turns into a conversation about cash flow, budgets, expected changes in the commodities market and other longer-range goals of our clients. We value these advisory conversations. For us, advisory encompasses all the things we do beyond compliance. Advisory discussions require our team to listen carefully and truly understand the context of a question rather than just respond. These conversations allow us to be proactive as we engage in a holistic thought process and encourage our entire team to participate and add value. Grimbleby Coleman takes pride in practicing high-touch accountancy.
A tax planning conversation with our team could uncover additional solutions for your business, including:
Considering elimination of low-margin products or services: With rising costs and shrinking labor availability, it may be time to eliminate some offerings the business has been willing to carry up to this point.
Examining your pricing and cost structure: Owners should evaluate the marketplace and customers. Addressing pricing strategies early on can keep the business afloat. Our team provides tools to help analyze your current pricing structure.
Becoming creative and flexible with your labor force: Working toward strong employee retention might mean becoming flexible with schedules and work environment, considering incentive plans for employees who rise to the challenge and hiring remote workers when it fits your business.
Looking (cautiously) for inventory deals: Stocking up on larger amounts of inventory may alleviate the risk of a shortage when shipments are delayed. However, more extensive inventories mean you’re either tying up cash or extending your line of credit, so be cautious.
Staying in conversation with your key suppliers: By speaking to suppliers regularly, you may be able to anticipate windows of opportunity, shortages or price increases.
Seeking out other supply sources: Reliance on one supplier for critical materials could cripple your business if the unexpected happens. It is wise to research alternative suppliers and consider allocating a small number of your purchases to them if you need to switch.
Understanding cash ebbs and flows through harvest times and beyond is a well-practiced skill. The Grimbleby Coleman team has worked directly with ag clients for over 50 years, so we know the unique challenges and opportunities our clients navigate to succeed.