What Really Motivates Your Accountant (And Why It's Not Your Profit)

Podcast transcript from Your Farm Business Podcast

Most farmers judge their accountant on one number: how little tax they had to pay. In this episode of Your Farm Business Podcast, host Tom Moir sits down with Mike Krause, founder and CEO of P2PAgri, to unpack the relationship between farmers and their accountants, and why the thing you most want from them may be the one thing they are not actually there to do.

Drawing on a consulting career spanning more than 200 farm businesses and countless meetings alongside accountants and lawyers, Mike explains what really drives an accountant, why minimising tax is not the same as building a healthy business, and how to be the master of your own decision making rather than handing that job to someone whose training points a different way.

Sitting Between the Farmer and the Accountant

Tom Moir:

I really enjoyed our last conversation about the relationship between banks and farmers. This one, between accountants and farmers, feels like it plays into your personal experience even more. You sit in a nice spot in the middle, talking to farmers and talking to their accountants. When did you start building that understanding?

Mike Krause:

Good question, Tom. I run a consulting practice where my objective is to help farmers maximise their profitability rather than minimise their tax. I am a bit like a farmer's accountant, except I am not looking at the tax side. The philosophy is: let's make the most profit we can for the farm, and then worry about how to minimise the tax, because if we have done it right there should be money there to pay the tax that is due. I have consulted to more than 200 farms over my career, and a lot of that has involved talking with their accountants and sitting in on succession meetings. So I understand the accountant's role and the value they bring, but I also think farmers need to understand what motivates an accountant, because it is a little different from what we assume.

The Two Things That Motivate Your Accountant

Tom Moir:

A lot of farmers just approach it as: how can I pay the least tax possible? Let's start with the accountant's perspective. From their shoes, what does it look like?

Mike Krause:

Like any profession, there are good accountants and average ones, so this is not a broad brush. But the way I see it, accountants have two main motivations. The first is that tax is a legal thing. Your tax return is a legal document and they are the authors of it. To be allowed to do that they need training, accreditation and their professional tickets. Now imagine an accountant with 40 or 50 clients, and the ATO comes back and says they have not been doing the compliance work properly and threatens to take their ticket away. That is catastrophic for their practice. So their number one priority is making sure everything is exactly as the ATO wants. Because of that, and quite correctly, they are conservative. Most accountants do not want to venture into grey areas.

The second motivation is that they see their biggest service to you as making sure you are not paying tax, or that you are minimising it. That is where their focus sits.

Five Years of Losses, and the Accountant Said Nothing

Mike Krause:

This really came home to me about 20 years ago. A bank rang and asked me to go and visit a farming client of theirs, a few hours away, to see how they were going financially. When I got there they had no management records, but by law you have to keep your tax returns, so I went through the last five years of them. You have to know how to read a tax return to judge whether a farm is viable, and this one had produced five years of losses in a row. That is almost certainly why the bank had sent me.

I thought, I wonder what the accountant has been doing all this time, so I rang him up. I said, your client's returns show five straight years of losses, which is not good. Have you pointed that out to them? He said no, that is not my role. They are as happy as beans with me because they have not had to pay any tax for five years, so I have done my job. And I am thinking, no, no, no. Yes, nobody likes paying the tax man, but not paying tax because you are losing money means the business is going backwards. That accountant did not feel he had any duty of care to tell the farmer they were going backwards at a rate of knots. That was the aha moment for me. I am not saying every accountant is like that, but surely it should not happen at all.

Do Not Assume Your Accountant Is Watching Your Profitability

Mike Krause:

A lot of us assume our accountant is the financial person who knows our income and our expenses, does our tax, and therefore understands our business well enough to advise on the big questions. The neighbour's place has come up for sale, should we buy it? Wool prices are poor this year, should we get out of sheep? We assume they are educated to answer those questions. But their education is in doing your tax returns and minimising your tax, not necessarily in answering those other questions. We should not assume every accountant we use can be used that way.

Tom Moir:

So how do accountants generally balance legal tax minimisation with a farmer's long-term business growth?

Mike Krause:

It varies from accountant to accountant, and honestly it is not the accountant's fault. It is on us as business people to ask the right questions. Most of us just want them to do the tax return, tell us how much we owe and when it is due, so we can get on with life. If that is all you need, they are doing their job well. But if you are relying on your tax person to tell you how you are tracking against your vision or your five-year plan, you have to ask them different questions, and that will probably cost a bit more because it takes more of their time. It is up to us to know what we want them to answer, and to understand what capabilities they actually have, rather than assuming they have more than they do.

Accountants Make Mistakes Too, So Check the Return

Tom Moir:

Do farmers expect too much from their accountants, or expect them to know things they are just not familiar with?

Mike Krause:

I think so. We put a lot of professional expectation on them and assume they are always right. Here is another myth to put on the table: accountants are just like us, they make mistakes. About 20 years ago mine did my return and said, Mike, here is another 25 grand you owe in tax. I did not expect that, so I went back and looked closely at what had gone off to the tax man, and I said, this element here is not right, I do not think that is true. He looked again and said, no, it is not, that 25 grand you do not have to pay. So when they hand you the draft return to sign off, do not just sign it. Go through the numbers and make sure they make logical sense to you.

The same applies to timeliness. In one family succession I worked on, the accountant took hold of the agenda, the number crunching and the communication with the lawyers, and what we thought would take two or three months took about eight, largely because he was tardy in keeping the process moving. Do not assume everything is being done exactly right, whether it is the accountant or the lawyer. Be educated and engaged enough to check that expectations are being met.

Tax Numbers Are Not Management Numbers

Tom Moir:

What about the difference between seasonal income and longer-term purchases like land? We touched on how banks see this. How do accountants look at it?

Mike Krause:

An accountant will say they can help with those numbers, but bear in mind the numbers they use are tax numbers, and the balance sheet and tax return are built for what the ATO wants, not what your banker wants or what you need to make decisions. Take an example. The ATO still values that block of land Tom's father bought back in 1966 at what he paid, say 60 dollars an acre, even though it might be worth 3,000 dollars an acre today. The accountant is not wrong, that purchase price is how they work out your capital gain when you sell. But if you are talking to your banker about security, you need the current market value of your land, your machinery and your livestock, and that is often nothing like what is in the tax return.

The bank will also want your cash flow, whereas the accountant only needs your annual profit and loss to work out your tax. So your accountant may not be across your monthly cash flow at all, and cash flow projections change year to year depending on what crops go into which paddocks. We need to drill into our cash flow and our balance sheet in far more detail than the accountant needs for compliance. If you are relying on your accountant for that, make sure they have the skills to tell the difference between what the ATO wants, what the bank wants, and what is actually useful to you.

When "Buy a New Header to Save Tax" Is the Wrong Advice

Mike Krause:

Here is where it gets dangerous. We come to the end of June, Tom has had a cracking year, and the message is: we need to bring your income down or push your expenses up to minimise the tax. So the accountant says, that header out the back, why not sell it and buy a 1.2 million dollar one? As soon as we do, we can claim big depreciation or the loan repayments against this year's tax. But we have not thought about next year. What if it is a drought, and the repayments on that header are 400 grand, and we cannot make them? Now we have added stress and strain to the business just to save tax. It might have been far better to pay a bit more tax and stay financially robust enough to ride out a poor season.

Tom loves a shiny new header, the tax man says he can have it, so why not? Because that may not be the best decision for the business. You have to take the bigger view: where the business is heading, what risks it carries. Ask first whether the purchase makes you more profitable and more efficient. If it does, then look at doing it as tax-effectively as you can. But do not let the tax tail wag the dog. Sometimes paying that painful tax is the smartest strategy of all.

Tax Strategies Worth Knowing: FMDs, Prepaying and Structures

Tom Moir:

Are there common tax-saving strategies farmers tend to overlook?

Mike Krause:

That is really the accountant's domain, I am not a tax accountant, but there are some good ones. Farm Management Deposits are excellent. Say Tom has a big year with a taxable income of a million dollars, but he does not need all of it for next year's carry-on finance. We might put two or three hundred thousand into an FMD, which brings this year's profitability, and the tax, down. Then if next year is a drought, that money comes back out when income is low, so it helps both cash flow and tax, because he is in a lower tax environment in the poorer year.

Another is prepaying: coming into June, buy next year's fertiliser up front so the cost lands in this good year, brings the tax down, and the inputs are already sitting there for next season. Just do your next 12 months of cash flow first to check the impact. Machinery replacement can work the same way if a good season means you can afford a deposit. And accountants often suggest different business structures, like moving from a partnership into a trust to spread tax or mitigate the risk of divorce. Yes, those structures help, but be mindful, every extra structure is another tax return and more fees. So go in with your eyes open, understanding what risk you are actually mitigating and what it costs to run.

Good Records, and Owning Your Chart of Accounts

Tom Moir:

How important is keeping records and data for effective tax planning, and do farmers do it well?

Mike Krause:

Things have changed enormously since GST came in around 2000. Before that, plenty of farmers just took a shoebox of receipts to the accountant. Once we all had to do quarterly or monthly BAS statements, everyone jumped onto software like Phoenix, AgriMaster, MYOB or Quicken, and we started recording income and expenses like never before. Now with cloud software, a lot of my clients are on Xero, which is easy to use, and farmers are doing a good job. I do advise them to see their accountant in April or May, before the end of June, to actually do tax planning rather than finding out in hindsight.

One issue I see is that farmers let their accountant set up the chart of accounts in Xero or MYOB, and accountants, left to it, tend to make it very detailed, which makes the bookkeeping more complex. I would encourage farmers to build up their own knowledge of what chart of accounts suits them, so it clearly separates variable costs from overheads and is easy to manage, rather than being led entirely by the bookkeeper or accountant.

Government Incentives Should Not Drive Your Decisions

Tom Moir:

Governments bring out incentives and tax laws change. How does that affect the advice given to farmers?

Mike Krause:

Tax law changes regularly, which is exactly why we use accountants. Where it influences behaviour is when the government wants to lift a slowing economy and offers, say, a 50 percent depreciation write-off on a new tractor, header or truck. That encourages farmers to change over gear, which can be a good decision. But we must not put ourselves in financial difficulty borrowing for it, in case next year is below average. The government will encourage you to spend when it suits them, and wind it back later. The key point is that you are the master of your own journey. You know the dot on the horizon you are heading for. Ask whether the decision makes you more efficient, and if it does, then do it as tax-effectively as you can. Do not let a shiny new header, bought just to dodge tax, pull you off course.

Be Proactive, Not Just a Tax-Time Visitor

Tom Moir:

What would you say to farmers who only deal with their accountant at tax time? How can they be more proactive through the year?

Mike Krause:

The usual rhythm is tax planning around April and May, then the return the following March. So most of us only see our accountant once or twice a year. But decisions do not wait for that calendar. Say it is August or September, you have done pre-harvest maintenance on the header, it cost 20 grand last year on the gearbox and it is another 20 grand this year on the comb, and you are thinking it is time to turn it over. That is the moment to have a yarn with your accountant about doing it tax-effectively, rather than making the move and only discussing it at tax planning in May, when a better method might have been available. If you have a good relationship, a quick phone call does not necessarily mean a bigger bill, and those timely conversations make your end-of-year planning far more effective.

The Big Myth: Your Accountant Owns Your Profitability

Tom Moir:

Are there any common myths between farmers and accountants you want to bust?

Mike Krause:

The big one is assuming your accountant is concerned about your profitability. They are concerned about your tax and about making sure you are not paying more than you have to, and for most accountants that is where it stops. The myth is that they will tell you when something is wrong, like that farmer with five years of losses whose accountant did not just stay silent but felt it was not his job to speak up. Do not assume your accountant has the overarching financial understanding of your business. You are the person responsible for your profitability. Educate yourself to the level where you can ask them the questions you want answered, and understand that the financial management they deal in may not cover the viability questions on your mind.

Where AI Is Taking Accounting

Tom Moir:

GST was a big shift in how we ran our businesses. Do you see accounting changing dramatically again in the next five to ten years?

Mike Krause:

It is like asking for a crystal ball, but it has already changed a lot. Cloud software made recording easier and, from a distance, Xero has been replacing things accountants used to do. Now everything has shifted again in the last few months with AI. I read an article this morning about AI agents being developed to the point where, in a couple of years, some are predicting lawyers and accountants will be replaced by AI. If AI can do the tax compliance and recording, will that make it cheaper and easier for farmers? I strongly suspect it will. We are at the early part of that change, but change is happening quickly. Whether it ends up being you talking to a bot and asking how much tax you owe, I do not know, but this area is going to change dramatically.

How P2PAgri Fits Between You, Your Accountant and Your Bank

Tom Moir:

How have you seen the P2PAgri software benefit farmers who use it as a data set to take to their accountant and their bank?

Mike Krause:

Our software does not do what MYOB or Xero or Phoenix or AgriMaster do. It takes that tax accounting data and adds the management accounting on top. It can answer questions like: is it more profitable to run merino sheep or prime lambs? What is the impact of buying the neighbour out? What does a two-year drought do to the business, and can you manage that risk? Farmers use it to build a planned cash flow, then each month pull in the actuals from MYOB or Xero to compare plan against actual, which is exactly the information a bank and an accountant find useful.

We have finance brokers using the platform to put a farm's data together and present it to financiers to get the best deal, and farm advisers using it to help maintain a client's bank relationship. So Plan to Profit Agri is not a competitor to your tax accounting. It grabs what it can from that, adds your paddocks, your weaning rates, your production levels, and gives you the finer management detail to make better in-season decisions and keep monitoring that you are moving in the right direction. It is a nice little ecosystem: model the scenarios, make the plan, take it to the bank and enact it.

Mike's Takeaway: Keep Your Hand on the Pulse

Tom Moir:

Any closing takeaways for farmers thinking about how to improve their tax efficiency, especially the set-and-forget ones?

Mike Krause:

The technology is there, whether it is Xero, MYOB or our software for your planned and actual cash flow. Using it keeps your hand on the pulse of the business, so you can inform your bank when they want information and your accountant when they need it. That three-way rhythm is a really good way to run the business. Let technology make you more efficient with your time so you can focus on the big and small decisions that keep driving things forward. Do not set and forget. If you surprise the tax man or the bank with information, that is when they get twitchy and harder to deal with.