Farming on the Front Foot update
Farm Financial Plans
With late or no rainfall and the window for planting winter crops ever-narrowing, having a strategy in place to analyse your current financial position that provides options – no matter what the climate throws at us – is key not only now, but throughout the year.
Key considerations Winter 2020
- The winter crop planting window is currently open – some has gone in dry; some has gone down deep seeking moisture from the earlier rains in February.
- Given the poor summer result which saw minimal sorghum planted in our region (apart from some very late crops, some of which are still to be harvested) it is a good time to be looking at where your winter crop or alternative income source needs to fund and which option(s) will produce the best margin.
- Given the China trade winds of barley tariffs and tenuously publicised interest from India, some will be looking to switch to wheat or chickpeas.
Your Farm’s Financial Plan – a new way to look at budgets and forecasts
By gathering key data and knowing where your starting position is, Carrick Aland’s Farm Advisory team can help you build a dynamic cash flow plan and compare actuals each quarter.
Why is this important?
It’s easy to set budgets early in the year to satisfy lending requirements but then as the year progresses, never referring back for guidance on where you should be or how seasonal changes have impacted budgets all gets put aside when work takes priority. It’s frustrating.
Farmers can become disheartened with their farming business when they know they are not hitting their goals, but if the approach is to reforecast and adjust accordingly, it can provide a renewed sense of composure.
That’s why we can provide the structure and discipline to help review your farm’s financial performance quarterly to allow for changes in the original forecast. It’s about setting a baseline budget first, then adjusting as the season unfolds.
For example, to set your baseline budget you may look at the usual number of cattle or sheep your enterprise can turn off in a year or using an average yield the amount of crop tonnage that can be produced. Factor in the direct costs and overheads based on the prior year and it will return a net profit for the enterprise as well as a return on your investment (assets used to generate that profit).
Then, as the year progresses, this will change depending on calving rates, forced sales for beef and sheep producers and change in commodity price, input costs and yield for cropping producers. Our approach allows for the quick adjustment of these factors and we can instantly see how that change is reflected in your bottom line.
A better alternative
“It’s not rained so far – let’s respond to that and find out what that means to you”
We recommend a quarterly review of forecast and budget, looking at how the numbers compare and then updating the forecast based on current conditions depending on your type of farm. Using a live working budget that’s not set in stone has more relevance and carries more meaning, especially when it can be adjusted for periods of drought and other external variables.
This time of year is also intensive for tax
With 2019 tax due in early June, PAYG Instalments are due in July, some December and March BAS payers were also extended to May plus you need to factor in your normal year-end planning of money into superannuation and/or Farm Management Deposits.
Knowing where the cash needs to go is more critical than ever.
Adopting new habits
Moving to a quarterly schedule of forecasting and budgeting isn’t difficult. Initially, it’s a process of understanding your farm operations and the likely inputs required to build up a picture.
“A couple of business planning meetings are needed to plot out the key ideas and then put pen to paper,” says Farm Advisory Lead and Carrick Aland Associate Director Daniel Bartkowski. “We take the time to get the intellectual property out of your brain into a workable state.”
Once your financials are formally captured, having the information to hand – even in the cloud – has numerous benefits.
“We met with a farming client who wanted to buy a property to expand their farm operations, but the bank was asking for a cash flow forecast,” says Daniel. “Having done the legwork, our client was ready to satisfy the bank’s requirements and progress the deal.”
“Having up to date financials ready to hand is convenient when looking to expand or even when you have to account for what you have during succession planning. But before you even approach the bank, it’s a good idea to review and feel confident around your own figures,” Daniel added.