Wednesday July 9 2014

Record every coin you earn or spend

By James Wire Lunghabo

One time on a visit to my village, I came across this childhood friend who is now a farmer. On asking how his business was, he told me, without flinching, how it is bad and he had made a loss during that season.

I then asked him the magnitude of the loss and he couldn’t quantify it. This led me to ask him how he knew he had made a loss and he replied, “Because I earned less than the previous season.” Further probing revealed to me that he had no idea what his total harvest was and how much he had spent in terms of inputs. His yardstick was based on the fact that he had been paid less per kilo than the previous year.

Gone are the days when agriculture in Uganda was largely subsistence. Today due to the need for survival and commercialisation of the economy, it is more than prudent for farmers to engage in some form of commercial agriculture. The biggest catch for them usually is understanding the issues around inputs, harvest, pricing, profit and investment.

Labour in rural Uganda is mainly free because it comes in terms of family input and thus never costed. In cases where the farmers do purchase some inputs, they never take time to link that to the final profit computations. It is therefore important that anyone involved in any form of commercial agriculture, however basic, keep some records.

Talking of records might make one start imagining all these double entry ledgers or complex Quick Books software on a computer to be updated daily. While this is ideal, it doesn’t have to be the case. Any literate person, even though mathematically challenged, can keep business records for a simple Agri-business.

It starts with developing the habit. As opposed to the mental records we are accustomed to keeping, it is good to get into the habit of having some written records on a regular basis. The mind can only go so far when it comes to recollecting details.

Keep It simple and stupid – KISS
Avoid falling for the temptation of kicking off with very complex hard to understand records. Try to make them as simple as possible for you and those you work with to understand, appreciate and interpret.

Understand basics of profit and loss
Fundamentals are important. What does Profit mean? What does Loss mean? What is revenue? Is Revenue the same as Profit? This foundational knowledge is very key towards helping one in decision making.

One can get started on the journey of record keeping without getting complex and as familiarity sets in, then more advanced systems can be deployed like computerised solutions. It goes without saying that improved record keeping can boost the performance of that agricultural enterprise.

how records help you

•Know the value your input. Many people involved in Agribusiness tend to rely on family labour to achieve their goals. It is important to value that input and as a result know what it amounts to. A time always comes when that ‘free’ labour for one reason or another ceases to be and you will have a challenge factoring in the costs of paying an employee who comes from out of the family.

• Settle for a price point of your products. Price is settled upon after computing all the input costs and then adding a profit margin. These inputs could be expenses while growing the crops like weeding, planting and harvesting, veterinary services for animals like artificial Insemination or treatment of disease. Most Agro producers let the middlemen decide the price for them and end up crying foul.
Basic record keeping can arm them with the relevant information needed to bargain for a decent pay. This was the folly of my childhood friend.

•Determine the feasibility of your project. With records, one can easily tell if they are investing in the right thing or not.

Considering the effort and resources one puts into a project and their alternative use can only be done when records are kept. Take the case of Mr Charles Maina a Kenyan farmer who planted eight acres of maize only to get Shs3 million after a year and when he converted less than a quarter an acre of his farmland to fruits, he got Shs2.1 million in six months from an investment of Shs900,000. It takes record keeping making such an assessment and carrying out the relevant switch.

•Tax. As you may or may not be aware, the Uganda Revenue Authority is no longer sparing the agricultural sector from taxation. This implies that to avoid being levied exorbitant taxes based on guesstimates, it is safer to have some records in place that can be used to back up your claim for a fair tax levy.

•Helps when it comes to borrowing money. With the ever increasing loan offerings for the agricultural sector on the market, well-kept records will easily get you a loan from most financial institutions.
It is no secret that occasionally any business needs some infusion of money to finance certain aspects of production.

types of records
• Day to day activities and occurrences on the farm like onset of rains, planting time, harvesting time, among others. Keeping a record of these can help one build a knowledge base to draw from in future as well as create a basis for future analysis.

• Crop or livestock records. What crops or animals do you have on the farm? What are they feeding on? Which plots are in use for growing crops? What are their growth patterns? Special needs that arise, treatment procedures and frequency etc.

• Personal expenses. There is a need to separate expenses on the business and your individual or family expenses. Family labour should be appropriately costed and when consumption of produce by the family occurs, records need to be kept too.

• Financial records.
What kind of assets do you have? These could be hoes, structures, wheelbarrows, a bicycle, motorcycle etc. What liabilities do you have? Loans mainly but it could also take the form of in-kind things like borrowed seed for planting. What is the revenue? How much you earn. What are your expenses? What has been spent to earn that revenue.

The writer is an agriculture and ICT entrepreneur

The author is an ICT and agro entrepreneur.