Wouldn’t it be nice to see the future … not just to get a head start on the coming seasons but to be ready and able to tackle any situation that gets thrown at your business.
While I don’t have a crystal ball, I can help you develop a resilient farming business that is able to manage through and recover from a crisis.
A contingency plan should be an important part of your business tool kit and yet it is something that is often overlooked or placed in the ‘too hard’ basket. A common question I hear from farming business owners is “Where do I start?” and this is quickly followed by “How do we plan for so many potential risks that can affect our business?”
While it may feel overwhelming to consider potential risks which could affect your business, putting thought to these issues and documenting solutions is a vital aspect of contingency planning.
My three tips are designed to help you start to build a more resilient business.
Step #1: What are the risks facing your business?
Start by identifying what, or who, is of the greatest importance in your business. Most likely it will be the farmer – the main decision maker. If the farmer is not there to plan, delegate, manage and do the work, your business will be at risk.
So, what are the consequences if this person is out of action for a week? A month? A year? Forever? In my experience, once it gets beyond a week, the costs and implications for the business begin to mount up.
Other areas of risk that need to be considered as part of your contingency plan include:
- Business and legal relationships including contract and leasing arrangements and business structures associated with your business.
- Economic factors such as financials (exchange rates, interest rates, cashflow), market changes (deregulation, tariffs), supply and demand and the general marketing environment.
- Environmental factors covering weather events, fires, pests and diseases.
- Political environment including available financial assistance, government support and policy, and industry competition.
- Technological considerations such as equipment and machinery reliability and access to information.
- Managerial abilities including management experience, occupational health and safety practices, quality management and security.
- The Human Factor including personal management style and goals, and family and business relationships and dynamics.
Step #2: Prioritising risk factors
For each area of risk, rate how likely it is to occur, and then, what is the cost of the consequences. These would include personal, business and financial consequences. The higher the rating, the greater the need to plan.
You can then work towards removing risks or determining how to mitigate those risks, which may include:
• Accepting the consequences with no plan;
• Shifting the cost to someone else, such as through insurance; and/or
• Putting steps in place to reduce the consequences of the risk.
My advice is to get a process in place and create a habit of problem solving and business improvement. Prioritise your potential risks and identify which are the easiest and hardest problems to solve. Start with an easier risk to manage, or one with the lowest impact, to build your confidence and then move on to managing risks which will provide the greatest benefit for your business.
Step #3: Putting your plan into action
Your greatest risk is failing to have a plan. A documented contingency plan will enable you take decisive action in a crisis, rather than having to make decisions at short notice without due diligence or while under stress.
Start with a single step followed by ongoing incremental improvements that reduce your risk exposure. Each improvement made will increase your business resilience.
Your contingency plan should identify:
• What the problem/risk is;
• Who it will affect;
• Possible consequences;
• How to avoid or mitigate the risks and/or consequences;
• The effectiveness of proposed solutions (personal, business and financial outcomes); and
• Who can help you and how.
Effective contingency planning is an ongoing process. Further, it’s important to review your business annually and make improvements to your plan so that responses are appropriate to changing business and market environments.
Following my own personal experience and reliance on my business contingency plan, I cannot emphasise how important they are.
How we can help
As a financial adviser, accredited P2PAgri 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 with making decisions with confidence, as well as long term planning for achieving your business and personal goals.
If you would like to know more about building a resilient business I encourage you to contact me today on 08 8253 2906 or email firstname.lastname@example.org to arrange an appointment.
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 391825, 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 Pty 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.