Farming Business Viability (Relying On You)
It's extraordinary how many people rely on a farming business remaining profitable.
On one level there is the family - spouse, children and parents - which has to be fed, watered and sheltered. On another level many others rely on your businesses including your bank, veterinarian, stock agent, freight company, fertiliser company and arguably even Inland Revenue.
For some of us we can add the in-laws into the mix.
That's a lot of dependents for a farmer to carry.
Rather than letting the worry of this get to you there are ways to cope with this pressure.
Firstly, the best thing you can do for your children is to love their mother. One marriage is enough for anyone.
Yes, all of your eggs are in one basket but that is the nature of farming. The answer is to watch that basket like a hawk.
Keep breathing in times of pressure. If something is wrong with your health then check it out. It might be possible for you to withstand pain forever but your family won't be able to and over time this attitude is quite selfish from a family point of view. Remember too that a sense of humour has some healing value.
Buying fertiliser provides a five year dividend but educating your children is a 50 year dividend. We must educate our children well regardless of how poor the return may be from time to time inside our own business.
You feel that low interest rates mean that borrowers are being rewarded for taking on debt and that savers are being slaughtered with present deposit rates – unfortunately you are spot on with both of these feelings.
The horsepower and energy of the boss on a farm will tend to be the horsepower and energy of the management team. Good communication is not necessarily progress, but it fills in gaps that would otherwise be thought of as being negative.
Death, taxes and volatility are now the three certainties of life. The first two certainties you will be well aware of, but volatility is a reasonably recent immigrant with permanent residency. All of these are serious but death is a "oncer". Taxes are only paid if you are doing well but volatility looks permanent, regular and negative.
Yes, your farming business has too little return for too much risk but that is how things have been for most of your lifetime. Never overlook the possibility to save money. Don't rely heavily upon other people for your own business success – home grown is best. That said, there is no halfway house with top advice. Take top advice on board and use it.
Don't dwell on your errors. Celebrate your successes and no matter how small fix your errors and keep moving forward. Don't let your past hold you back – mistakes, potholes, losses and lost opportunities can continue to annoy, but create your future and do not linger on the past. Don't rely upon good luck to solve your problems. We all need some luck and hard work often seems to create some luck but it is usually fleeting and certainly unreliable. · Learn from your mistakes and that should be easier than your successes because your mistakes won't leave the recesses of your mind.
The most boring parts of your business can sometimes be the most profitable parts so don't neglect boring and maintain a helicopter view of your overall business. Don't give up your ideas just because some people don't agree with them - they might just have narrow vision. Sometimes being overly pessimistic with risk is just as bad as being overly optimistic. However, if you can't get your theory to work on paper then it probably won't work in practice. Don't try to grow too fast – get your direction right before your speed.
In farm succession planning don't be afraid to leave some debt for the next generation – not a mountain of debt but a sustainable amount in the hands of a good operator. If you must sell the farm then try and sell it during an up-cycle and even more importantly control all parts of the sale process as the skin left in the game will be yours. Don't cancel or even reduce your life assurance or family health care policies without a lot of thought.
Historic 'rules of thumb' are not what they used to be. The good years don't always follow bad years. The old rules of thumb now need to have due diligence applied and be looked at on a farm-by-farm, farmer-by-farmer, family-by-family basis.
Farmers learn from other farmers. Good farmers will usually openly tell you how they approached a problem or something worked well for them. Likewise, they will usually tell you in strong language what didn't work.
The public doesn't understand that good farmers are carrying out an extremely complex activity and no amount of words will bridge this gap. If anything the gulf is widening.
Almost all men are quietly confident that they are above average drivers. Likewise, most farmers believe they are better than average farmers. You will cause everyone, including yourself, infinite ongoing pain if you happen to be wrong with this second belief. One of the most important farming points to be realistic about is your own ability. Build and grow this ability and listen and learn from others.
Add getting older to your reduced farming profitability coupled with increased volatility and the key financially looking forward is to build your balance sheet at every opportunity. You need to sell this point clearly to your spouse and family. This issue is not open for discussion; it really is second after breathing for many farming couples today.
Pita Alexander is an accountancy and agribusiness director at Alexanders.
11 July 2016