Add-on or other software for managing inventory

[sparksna]

I keep records for the family farm using QB Pro. I have the same question others have had regarding inventory. Specifically, I would like to track crops growing in the field as inventory for the crops operation and at harvest "sell" them to dairy. What software or add-ons might work best? I see Intuit has a Manufacturing and Wholesale version. Would this work? Or, would it be easier to use a separate spreadsheet to do what I want to do? Thanks for any help anyone can give.

Nate

[FlagshipTech]

What you want to do is a common goal. There are a lot of factors and considerations involved, and it's not simple to do; consequently, most people don't do it. Those who do, usually use some kind of a "hybrid" approach--often involving a spreadsheet, as you mention, to prepare independent P&Ls for their farm's profit centers.

The first hurdle for most farming operations is the cash- vs. accrual-accounting problem. Most farmers want to use cash-basis accounting, especially since that's generally allowed for farm tax records but also because it's simple. But all managerial accounting requires at least some form of accrual-based records. You probably want to "expense" the fertilizer your apply to a forage crop to sell to the dairy enterprise, for tax record purposes, while at the same time for managerial accounting purposes you need record the fertilizer as in some kind of a growing crop inventory, which is not an expense but is an asset.

So to accomplish the necessary entries and records, you end up having to resort to either: (1) some complex accounting which requires a lot of diligence and oversight--and has lots of places where it's easy to make mistakes--or (2) an external software package which works with QuickBooks.

QuickBooks doesn't handle this dual-purpose accounting dichotomy well at all. Believe me, we have looked at all possible approaches, and all have some pitfalls. One of the approaches is set up intra-enterprise transfer accounts in QuickBooks that aren't assigned a tax line (see any Account's edit window). Then you can use the accounts which do have tax line numbers assigned for normal income/expense recording (to generate tax records) but use the no-tax-line accounts for reversing entries to "remove" things from expense or income and place them back into inventory. That way, standard QuickBooks reports include all accounts, but tax reports only include accounts that have an assigned tax line. Unfortunately all this is very messy, and there are lots of places to make mental mistakes without a good way to audit what you've done, and it requires a lot of attention to detail.

Now you might think you could approach all this by keeping accrual records in QuickBooks and just using QuickBooks's cash-basis reporting feature to generate tax reports. QuickBooks is supposed to "back out" non-cash entries (like unpaid bills and receivables) to produce cash-based reports. But as I've learned recently, that isn't an adequate solution. If an Accounts Receivable entry involves a balance sheet account such as a deposit, inventory, or maybe a sale of an asset, QuickBooks will not back it out! ...which leaves you with a report that isn't a correct cash-basis report; one you'd rather not try to explain to the IRS.

Buy the number one problem with using QuickBooks for managerial accounting in agriculture is inventories: how to value them, how to transfer ("sell") them to other profit centers within the farm business, and how to record them in QuickBooks. QuickBooks' inventory system was originally designed for a "buy wholesale, sell retail" business. The concept of entering production into inventory wasn't considered then.

You mention QuickBooks Wholesale & Manufacturing. It has some useful extra features but doesn't really overcome the main hurdles. For example, it supports "inventory assemblies", which is a way to describe production comprised of assembling a QuickBooks Item from various other Items. But most serious manufacturing inventory users of QuickBooks resort to an add-on inventory management package, like FishBowl Inventory. I haven't looked at any of them in detail, but I don't believe any of them are a good fit with how most farmers want to do accounting.

So what about solving your problem, today? The best bet is probably to use Classes diligently in your QuickBooks transactions, to get expenses and revenues assigned as close as possible to the correct cost and profit centers. Then generate Class-based reports that contain the numbers you need for completing P&Ls for individual profit centers, like alfalfa production, and assign a reasonable market value to the production to measure profit or loss in each profit center.

[Shameless product plug: ManagePLUS for QuickBooks (http://www.goflagship.com/products/mphome.htm) provides a lot of Class-related information and statistics--like average prices paid and received, etc.--with little more effort than you're expending right now.]

The biggest problem with this approach is the need to allocate overhead expenses to particular cost or profit centers. Some people do that with spreadsheets too, and the job isn't too bad once you have your spreadsheet all set up. It's important not to get too ambitious (read: keep track of too much enterprise detail) the first time to so you try this. Keep things simple, with just a few major enterprise divisions.

You'll find that how you structure your Classes list becomes important for allocating things. You'll find you need at least a few different levels. For example, you might have this kind of a structure for crops Classes:


Crop
RowCrop
Corn
Soybeans
Forage
Alfalfa
Orchardgrass
Pasture


Thus, you can assign any general crop expense (maybe depreciation of a tractor) to the Crop Class, which you may allocate to all Crop classes based on acreage (or some other rational basis). Depreciation & operating expenses for a hay mower-conditioner might be assigned to the Crop:Forage class, since it's likely used across most forage acres, and so on. Your specific structure should be tailored to your understanding of your operation.

We're looking into adding some things that will help with all this, to ManagePLUS for QuickBooks (http://www.goflagship.com/products/mphome.htm) product. Specifically, we're looking at ways to simplify and automate inventory counts and valuation at the beginning and end of each accounting period (fiscal year), as well as assign "expensed" items like fertilizer and seed as part of the beginning inventory of the succeeding fiscal year (which is at least part of what you're asking about). We're also considering Class allocation features. Together, all of this will allow preparing accurate beginning/ending balance sheets even from cash-basis accounting records. However--and it's a BIG "however"--those things are far down the road in the future of ManagePLUS.

One other thought: Texas A&M University has done a lot of work related to QuickBooks in agriculture, and they have a set of analysis spreadsheets based on QuickBooks records, I think. You might Google them, and possibly the name "Linda Duckworth", as she is or was one of the lead people involved in that effort.

Mark Wilsdorf
Flagship Technologies, Inc.
QuickBooks™ Add-Ons and Solutions You Can Use
http://www.goflagship.com

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