Running a family farming business can be stressful. You’re dealing with market fluctuations, pressure to increase productivity, pests and adverse weather conditions, not to mention the general demands of laying the foundations for the next generation. Caught up in the immediate needs of the business, you may find yourself unprepared for unexpected events such as a major machinery breakdown or a significant business opportunity.
While a large business may have a board of directors or a management team to help plan for the longer term, it may feel as if you are left to navigate these challenges on your own. The good news is, establishing an advisory board means you don’t have to.
Why an advisory board?
Farming businesses are constantly changing and you may not have the skills to make decisions on questions about the scale of operations, production efficiencies, new technologies, agricultural breakthroughs, expectations from external parties, and more. Yet these are decisions which could have long lasting impacts on your livelihood.
Establishing an advisory board can help you tap into a wide range of experience to help you make the most of your farming business.
What is an advisory board?
Advisory boards help you to consider your business operations from a strategic and long-term view, as opposed to addressing short-term tactical decision making. One or two independent people are all that you may need to receive quality independent advice for key areas of your business.
Members of an advisory board generally bring skills and experience in areas such as finance, business management, marketing or specialist experience from agricultural or other industries. What’s most important is that these members will encourage you to look at the business from a fresh perspective and guide your decision making to reflect the long-term needs of the business.
Advisory boards are particularly beneficial for family-owned businesses where there may be conflict between family members or business partners. They are another vehicle for helping family members to understand the longer term goals for the future of the business and the options available to get there.
Advisory board meetings can be quite flexible and informal in nature and are structured to meet the needs of each business owner. Usually an advisory board meeting every 4 – 6 months will suffice.
How can an advisory board help your family farming business?
Advisory boards can provide ongoing advice and guidance at all stages of your business, but they can be especially critical for your business when:
- Growing your business: If you are looking to grow your business or it is experiencing rapid growth, an advisory board can help you take account of your long-term strategic goals when considering options such as the purchase of large machinery or infrastructure.
- Needing to raise capital or better manage cash flow: Advisory boards can address your business model to identify improved profitability through better budgeting and forecasting. This can help to more effectively plan for machinery servicing and replacement. An advisory board can also address financing options and debt repayment plans to help achieve goals, such as land acquisition, more efficiently and in line with strategic goals.
- Planning succession of your business: An advisory board can help create a better business through helping all involved in the business to understand the big picture, establishing clear accountability and enabling well-informed decision making which aligns to the long-term direction of the business.
The example below outlines how an advisory board can assist you to make the most appropriate decisions for the long-term future of your family farming business.
Sam and Eliza were running a family farming business and considering borrowing $650,000 to fund an upgrade to their header and chaser bin, to increase productivity. While Sam was aware of the need for the machinery upgrades, Eliza, who worked off-farm, was particularly nervous about the family farming business incurring additional debt. Sam and Eliza established an advisory board, including their long-term finance manager as well as their livestock agent, to help them consider what the additional debt may mean in context of their overall long-term financial objectives and succession plan.
The advisory board meetings were used to focus on the big picture and identify how the purchase of new machinery would impact on their overall profitability. As well as considering the machinery purchase, the advisory board identified an opportunity to purchase an additional property. While the machinery purchase would represent significantly increased debt, it also correlated to a 20% increase in productivity, which in this instance was more advantageous in the long term.
The advisory board meant that the decisions were made based on the long-term view of the business, rather than short-term tactical decisions. This long-term focus resulted in Sam and Eliza making an informed decision to upgrade key farming plant.
The broad experience of the advisory board members helped remove the emotion and provide perspective which helped Sam and Eliza feel more confident in their decision making.
At Financial Services SA, we have a personal interest in helping family farming businesses implement practical solutions to help them make the most of their situation. Dibbo has been helping primary producers and family business owners in rural and remote locations for more than 30 years.
If you would like more information about gaining fresh insights for your family farming business through establishing an advisory board, 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 Pty 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.