News
Are you running a business?

Monday September 30, 2013

I came across an old coffee advertisement that was appealing to the romance of the rural lifestyle. …. The picture is familiar – a couple, steaming mugs in hand, watching the sun rise over rich pastures while a gentle morning mist slowly evaporates to reveal grazing cattle. The couple exchange a smile of contentment: another day in paradise.
The images it creates are magnificent and for a moment you wonder who in their right mind would trade life on the land for the rat-race of the city.

Advertisements are designed to be emotive but the truth of course is a bit different. A rural lifestyle should not be confused with the harsh realities of running a rural business.

It’s a business of extremes – extreme highs countered by extreme lows. It’s a business of cycles charted by the seasons – years of abundance interrupted by the unavoidable threat of drought, flood, fire or other natural disaster our great continent is famous for.

We know there are going to be lean years where adverse seasonal conditions are going to occur roughly one year out of every six.

But is this really different from any other business?

Harsh times are going to occur in any commercial venture, this is a known ‘known’, so strategic planning to help you ride out the rough times becomes essential. Remove the emotion of land-ownership and the family traditions that accompany farming and you’re left with a business that experiences good times and bad, profitable years and years of loss. Perhaps unremarkably no-one enters a business with an intention other than making a profit.
Perhaps unlike other businesses, if your farm isn’t profitable, it’s a little more difficult to shut up shop and turn off the lights on your way out.

The business of farming is often difficult to view in such impersonal terms; after all, working the land tends to ‘run in the family’. It’s a legacy passed from generation to generation. But it is a business nonetheless. It exists to supply a commercial demand while producing an income for the people who work on it. It puts food on the table, pays for the children’s education and funds retirement – just as you’d expect of any other business.
Regardless of the nature of that business, successful operators plan ahead and surround themselves with skilled people. For example, you’re the expert at raising beef cattle but at what stage were you supposed to become a tax expert as well? Do you expect too much of yourself?

Which leads neatly into an interesting point: although people who work the land tend to display a marked willingness to offer assistance to others, they rarely seek assistance for themselves. Many – unwittingly – place unfair expectations on themselves by attempting to ‘go it alone’.

The business of running a profitable farm requires specific skills and tenacity. It has some unique complexities that may be specific to that property but finances are not one of these. There’s no reason you should feel you’re alone when faced with producing:
• budgets and cash flow forecasts,
• tracking income and expenditure,
• managing taxation, wages and superannuation,
• building a portfolio of off farm assets,
• assessing appropriate personal insurance.

Let’s return to the stats for a moment. If the odds are that one in six farming years may result in a financial loss to your business, doesn’t it make sense to put a plan in place that helps ride out these years?
A tailored plan is crucial to success.

A financial plan, tailored to the particular business of your property, can mean the difference between borrowing through the tough times and treading water in the good, or having reserve funds for the lean years and surplus for savings and business growth during the productive years.
Timing is also key. Early planning may prevent your business decisions being triggered by events over which you have no control. Planning early puts you in command and increases your options when seasons and markets move against you.

If you could make small changes to your business strategy that allowed your property to be more profitable, wouldn’t you be interested?

Financial advisers with an understanding of rural property management, can work with you to achieve these outcomes.

Development of an appropriate plan for you and your business will provide considered strategies for all the market conditions that you will face.

Consider these points:
1. Budgeting harks back to the adage of living within your means. It might be handling household expenses or managing the costs of the property. Identifying needs from wants is paramount to keeping operational costs under control.
2. Many events that impede profitability are outside of your control which raises the question of contingency planning – what you can do now to prepare for these events.
3. Wealth creation sets up your future. A business with sustainable profitability, even in less lucrative years, will enable you to plan your life through each of its stages from raising a young family to retirement and beyond.

These issues are the same as those faced by the couple running a cafe or the local plumber. The difference lies in the experience and background of the professionals they have behind them helping them to achieve their goals.
Let’s end with a different version of the same advertisement: a sweat-stained man returning to the homestead after an honest day’s graft on the land. He may appear alone, but he has a trained army at his back and a plan for the future.



News Articles Archive