Running an agricultural business goes hand in hand with fluctuations in production inputs, income and cash flow, little control over market prices and the need to cover expenses in low income years.
Many agricultural business owners feel like they are at the mercy of others and the environment, and are unable to make the most of high income events, from settling for prices that are inadequate to meet the needs of the business, through to surprises at tax time, often more than 12 months after crop/commodity sales.
A poor decision made today can impact your bottom line for years to come.
If you would like to take the stress out of managing your agricultural business, and create a business that will not only survive, but prosper in the face of these inevitable challenges, we can help you build resilience into your business.
I believe the ongoing challenge for South Australian rural business owners and primary producers is to create businesses that are resilient. A resilient business has the ability to recover from climatic and market variations and remain economically viable. My three top tips show you how.
#1 Start at the beginning . . .
The beginning of the production cycle is the most important time to review and renew your goals. You can build resilience into your business by identifying improvements on what you did in the previous year, checking that you have the right resources available and setting your marketing strategies as part of pre-season planning. This enables you to be proactive and to avoid marketing decisions being made on your behalf at the time of delivery, leaving you settling for a price that is inadequate for your needs.
By determining risk factors facing your business up front, it’s easier to enact risk mitigation strategies, whether it be sharing the risk through insurance or avoiding the risk.
It’s also important to determine the breakeven points and profit margins required to be able to achieve your current financial commitments, as well as long term goals including equipment replacement, planning for retirement and business succession.
In my experience, resilient agricultural businesses have this type of planning in place.
#2 Review, review, review . . .
If there’s one predictable thing about farming, it’s that it is unpredictable and this underlines the need for your business to have the resilience to prosper. Monitoring your progress on a regular basis is important to be able to react to shifts in the market or seasonal conditions. Some of the key areas that should be reviewed on a regular basis include:
Risk mitigation: Considering all the “what ifs” can help identify problems or barriers that you might face. What are the contingencies that need to be taken into account as the season progresses? Do you need to consider insurances or can the risks be avoided?
Marketing: Have you considered strategies for marketing your commodity well before sale time? Reviewing your approach with a commodity marketing specialist may assist you to maximise your returns.
Gross margins: Your gross margins should be considered throughout your whole production cycle. By reviewing market conditions you may identify ways you can achieve greater gains, for example sacrificing outputs for one season to maximise returns in the following year.
Cost of production: Knowing your production costs is a key step to maintaining a profitable and sustainable business. There can be real value in engaging an agronomist to review your program with the aim of maximising your production performance and establishing benchmarks.
#3: Make the most of tax efficiencies . . .
I have witnessed first-hand the devastation that an unplanned tax bill can place on agricultural families. You can avoid this by taking proactive steps that may allow you to take advantage of tax efficiencies. Steps like the following also create resilience as they protect your business from unpleasant surprises:
- Contacting your accountant post-harvest/muster to discuss tax planning
- Meeting your accountant as soon as possible after June 30
- Lodging your BAS on time
- Reviewing your lending arrangements and considering voluntary repayments as part of your tax plan
- Discussing strategies with your accountant that may be appropriate for your business including: FMDs, deferring income, pre-paying interest and planning purchases.
A little bit of planning can not only make a huge difference when it comes to making the most of tax efficiencies, it can also strengthen your business over the longer term.
Let’s go around again . . .
It’s important to review your performance annually and make improvements in response to changing business and market environments.
As a financial adviser, mortgage broker and business consultant who has worked with farming families for more than 30 years, I have a strong understanding of the challenges facing the agricultural industry, and I can assist you in managing the fluctuations of your business so you can make decisions with confidence. Using our Sustainable Business Framework, I can help you develop a plan that you own and understand so you can make the most of your business regardless of market conditions.
For more information on how we can help your agricultural business and to review your business with our Sustainable Business Framework I invite you to contact me today on 08 8253 2906 or email info@financialservicessa.com.au
This advice is provided by Phillip Dibben under Financial Services SA rural business consulting services.
Phillip Dibben is an MFAA Approved Credit Adviser, including SMSF lending, and is an Authorised Credit Representative with Riverland Lending Services Ltd, ABN 37 1415 814 080 ACL 391835, and is licensed to provide advice in all consumer and business loans including equipment finance. All loans are subject to lending and approval criteria.
Phillip Dibben is also a financial adviser at Active Financial Management. Active Financial Management and its advisers are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306 trading as Fortnum Financial Advisers.
This information does not consider your personal circumstances (including taxation) and is of a general nature only. You should not act on the information provided without first obtaining advice specific to your circumstances.