Being in the Australian agriculture industry is not the easiest industry to be in. Year on year, you as a farmer face many ongoing issues that are not within their control. From little government assistance to ongoing climate issues to now with the impact of COVID-19, the shortfall of agricultural workers was felt across many enterprises.
That being said, Australian farmers are consecutively breaking their own records each year with their high production and output. For example, the 2021/2022 production year was a record-breaking year for Australian farm growers, with CBH Group reported receiving 21.3 million tonnes.
Despite these unpredictable challenges, farmers remain resilient and thrive in the face of adversity.
What does this prove?
This further proves in farming, yes, having favourable weather, a stable global market, and good quality soil type are important. But one of the biggest oversight in agriculture is the area of financial management; how you manage the available resources to reduce your farm risks and create opportunities regardless of the impact of external factors.
Richard Brake, a former adviser from Farmanco, explained that success is based on the overall management of the farm finances, having a deep understanding of your farm business, knowing your profit drivers, and knowing where the next investment opportunities lie.
Saying that management of the farm will bring success is a broad statement
The answer is in cash flow planning and modelling. One way to do this is to dedicate time with your accountants, advisers or consultants to:
- Identify issues that are likely to occur
- Understand when you will need the cash
- Understand when your cash pressures might come on through the year.
Richard states closing your cashbook earlier will allow you to identify these factors and help you make decisions quickly and effectively. With unpredictabilities in the market and by knowing your business stress factors, you can also conduct scenario planning to analyse the change in your cash flow if a certain situation occurs. Doing so will help you minimise losses and answer critical questions such as:
- What is the extent of the impact if there is a poor year?
- Will you be able to maintain your performance?
- Will the changes limit what you can do in the future?
Consistency is key
The more you review and analyse your numbers, the more you can identify what you can achieve within your financial capacity and how you can achieve them.
Consistently update your books and budget frequently. This needs to be reviewed at least once a month. Circumstances change regularly, and adjustments to the cash flow and budgets need to be made to reflect changes within the market. By knowing your numbers, you can make conscious and deliberate allocation of your money in the area of your farm business you want to invest in. Reflect on the numbers and ask yourself:
- Are you happy with the current performance?
- Is your production as much as you have hoped and planned for?
- What are the factors that are limiting you from achieving your planned goals?
- Are there major changes occurring in the market, such as price increases in fertiliser, chemicals, etc., impacting your yield?
These are important questions that need to be answered for the long-term growth of your farm businesses. Your numbers create transparency and allow you to make proactive decisions.
With forward financial planning, not only can you be proactive in your response, but it also creates emotional rigidity; meaning regardless of any fluctuations in the market, you'll know exactly where your business will stand, how much your return will be, and the repercussions you will face if you are to react immediately or later on. You won't be in a panic to sell or feel forced to respond to the failing market.
Everyone in farming works very hard, and as a business, everyone has financial goals they want to achieve, but not everyone reaches their goals. To avoid disappointment, create a long-term strategic plan by implementing financial management and forward planning processes into your farm business.
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