Let’s Talk about Accounting for Growers

For growers and horticulturalists, accounting is critical when understanding the value of your plants, no matter what lifecycle stage they are in. You need to track accounting for proper tax and reporting purposes, for the bank, or for auditing purposes.

Not only will good organization and impeccable bookkeeping be useful to your staff and management, it’ll also help with presenting your company to investors. Many investors see horticulture as a great place to invest, with lots of funds floating into the industry, but if you can’t present accurate inventory reports you may miss out.

It’s an AcCRUAL AcCRUAL World

Many times, growers operate as cash-based organizations in an accrual world. When operating in accrual, it gives you better business insight. Your inventory is worth money when it’s in the soil, not just after it’s sold. Chances are you report to the bank every month where you are financially. And if you can’t give them a complete profitability picture, it could impact your line of credit.

According to the website PocketSense, The accrual accounting method provides the advantages of comparability and communication, because it communicates the activities that occurred during the period. For example, if the company earned revenue during the current month, this revenue appears on the income statement. The company may not receive payment until the following month, but users of the income statement can see that the company engaged in income-producing activities during the current month. Many companies use accrual accounting because of the communication. Since these financial statements follow the same format, companies who use this method can compare their financial activities with other companies.

Certain accounting standards, including the generally accepted accounting principles, or GAAP, standards essentially required for publicly traded companies, also favor using accrual accounting.

Cash accounting provides less analytical information for the business owner. The business owner needs to dig into non-accounting data to understand what activities occurred during the month. For example, to analyze the amount of money customers owe the business, the business owner needs to review individual invoices rather than a financial account. Another disadvantage of cash accounting involves the need to restate the information if the company seeks financing or sells stock. Many lenders and stockholders require financial statements which use accrual accounting.

Dimensions

Another challenge that growers have is analyzing financials for sales, travel, etc., by department, or by customer, etc., without adding additional accounts or fields which break up the balance sheet and over-complicates your chart of accounts. Microsoft Dynamics NAV solves this problem and takes accounting for growers to the next level with a solution called Dimensions within the system.

A Dimension is the term used in Microsoft Dynamics NAV to define an analysis category. Dimensions are used to group, or categorize, data for the purpose of analysis. Dimensions consist of Dimension Values. A Dimension Value is a “subcategory” or a “tag” attached to data to conduct meaningful analysis (think of them like article tags on a blog). A Dimension can consist of any amount of Dimension Values.

There are two principle types of Dimensions in NAV: Shortcut and Global.

Global Dimensions in Dynamics NAV

Global Dimensions are the most important Dynamics NAV Dimensions for a company. Global Dimensions are located in the same database table as your master records. This means that besides the possibility of using Global Dimensions as a filter on all Account Schedules, Batch Jobs, and reports, Global Dimensions can also be used as a filter on G/L entries. Another unique feature of Global Dimensions in Dynamics NAV is that they can be used as additional fields on purchase and sales document headers.

Example of a Global Dimension

I alluded to this earlier, but an example of two Global Dimensions could be: Salesperson and Customer

These Global Dimensions would allow using a quick filter on the Chart of Accounts to break down an amount by Salesperson to determine the cost of sales and profitability (travel expenses, etc.) by Customer.

Shortcut Dimensions in Dynamics NAV

Shortcut Dimensions are analysis categories which facilitate financial, inventory, production, and other analyses. Shortcut Dimensions can be assigned directly to journal, sales, or purchase lines; they can also be assigned to master data (e.g. a Customer, a Vendor, an Item, etc.). A company can create an unlimited quantity of Shortcut Dimensions in Dynamics NAV.

Certain areas of Dynamics NAV, however, will only allow a limited number of Dimensions at the same time (for example, only 4 Shortcut Dimensions can be used per Analysis View – to use other Dimensions another Analysis View must be created).

Example of a Shortcut Dimension

A company selling fruits and vegetables is interested in running financial reports based on what categories of products are sold and where they were sold, they can create Shortcut Dimensions for Product and Area.

When a problem comes along, you must WIP it

Ok, we’re not talking about the Devo song, we are talking about Work in Progress (WIP), a production and supply-chain management term describing partially finished goods awaiting completion. WIP refers to the raw materials, labor, and overhead costs incurred for products that are at various stages of the production process. WIP is a component of the inventory asset account on the balance sheet. These costs are subsequently transferred to the finished goods account and eventually to cost of sales.

Agriware, a part of Velosio’s Greenhouse Management solution, calculates WIP in real-time for what you have in the dirt. This gives you an idea of the true profitability of your plants and enables more accurate accounting for growers. Should you raise the price for this product, or discontinue that one? This helps you focus on planting more of your higher margin plants. Or determine if you should grow it or buy it.

Velosio Greenhouse Management software ensures that the inventory numbers are live and accurate at all times and provides an inventory value report at the click of a button for efficient and accurate greenhouse inventory management. It tells you the WIP cost and provides accurate production and accounting numbers every time.

It also helps:

  • Automate activities that you currently handle manually
  • Gain a complete view of your space needs based on both historical and real-time data so you can leverage every square foot of space
  • Equip your teams with data and insights to be more efficient
  • Provide your team the tools to work collaboratively and achieve goals
  • Plan for the upcoming season by accurately ordering, tracking and using materials, plants and products for operational and financial success

Webinar: Accounting for Growers: 12/12 at 12pm

Join us for a discussion on how we help growers like you better manage accounting and profitability while streamlining operations.

In this session, we’ll cover how our solution handles accounting in accrual, give a demo of Dimensions within Microsoft Dynamics NAV, and will cover WIP within the Velosio Greenhouse Management. See you online!

Best regards,
Todd Waterman
Industry Manager, Agribusiness, Velosio


About Todd
Todd Waterman has spent over 17 years in IT for Agribusiness, including at his own consulting firm, and as Chief Administration Officer for EuroAmerican Propogators in California. From start-ups to enterprise-class organizations, his knowledge of the agribusiness ecosystem and products helps Velosio customers Todd Watermanmaximize ROI on technology investments.

Today, Todd serves Velosio customers in his role as Industry Manager for Agribusiness. Todd is based in sunny California, and received his BA from San Diego State University in San Diego, California.
https://www.linkedin.com/in/toddwaterman/


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