The importance of working on the business rather than in it and focusing on factors that can be controlled were amongst the key messages from chartered accountant and financial consultant Frazer Weir.
Speaking on the third of Beef + Lamb New Zealand’s webinar series ‘Sow, Grow, Thrive’: Budgets and Beyond: Discovering Opportunities through Cash Flow Monitoring, Weir said working on the business helped farmers get out of the weeds and consider the big picture for their business.
He says good farm operators understand the areas they can control and focus on those. They do what they’re good at and use the farming system that suits the attributes of their farm. This leads to good production and a low-cost structure.
"Keep it simple and do it really well," he says.
He recommended farmers take a team approach to their business or use an advisory board made up of people who provide different perspectives on an issue. This enables good discussions and will lead to better decisions.
" Running a farming business is becoming increasingly complex, so exploring issues through different lens can be an effective way to see other options and bring some independent perspectives to the kitchen table."
Weir said understanding the farm business and boosting financial literacy should be an area of focus for farmers.
Cash is king in tough financial times, and he encourages farmers to consider how they could maximise their cash position without jeopardising their future profitability.
"It’s important you have your budget and regularly review it, so you get a better understanding of your debt, assets and equity. Look at the variances and use insights from your two-monthly GST return filing to make updates to your budget. "
He challenged farmers to look at opportunities to drive efficiencies in their business.
"Where can you trim the fat without affecting production? Go through your farm inputs on a line-by-line basis and consider where small savings can be made. They all add up."
For those who struggle with numbers and finances, he suggests getting help from an accountant, farm consultant, farm team or advisory board.
He says his top performing clients are managing their cash flow really well. They set budgets for this year, next year and forecast for longer term impacts.
"They’re being careful and not making wholesale changes to their business, instead looking for those small gains and planning for the cash flow pinch periods."
Frazer says there is no template for financial risk management as everyone’s risk profile is different, but adds that it’s important farmers are aware of the risk profile for their businesses.
He says completing a risk matrix can be a relatively simple exercise and might show the greatest financial risk to a business might not be the most obvious one. This then provides the opportunity to control that risk.
"If you have a high-risk profile, then you might be happy to go with a floating interest rate policy. If your appetite for risk is lower, then a fixed rate may be better for you. Have the conversation with your bank and work together on a solution that works for you."
He says fostering a good relationship with the bank is smart practice. If they are provided with accurate and timely information, they’ll better understand and support the farm business.
Frazer encourages farmers to talk to their bank about their risk ratings and what levers they can pull to move into a different risk rating. This could improve the interest rate they are paying.
Beef + Lamb New Zealand’s Sow, Grow and Thrive: empowering farmers to financial success is a series of six webinars running every Monday night from 7.30–8.30 pm until 16 October.
Find out more
For more information, visit our Event Calendar at Sow, Grow, Thrive: A B+LNZ webinar series to empower farmers for financial success.
Listen to the second webinar of the series: Budgets and Beyond: Discovering Opportunities through Cash Flow Monitoring