FARM FINANCIAL PLANNING & MANAGEMENT

Why FARM FINANCIAL PLANNING & MANAGEMENT?

Financial planning and management involves accurately monitoring your cash, and stock position, to allow you to make the best informed spending and investment decisions for your business.

Having clarity around your cash and stock position will enable you to make the best use out of your liquidity position. Why carry forward surplus cash in your current account when you should be repaying debt. Why carry a large overdraft when you should have core debt on the cheapest possible interest rate?

If you have a looming liquidity shortfall, a forewarned banker will be far more approachable than a surprised one. You will also most likely get a better interest rate.

What is FINANCIAL MANAGEMENT?

The key to good financial planning and management is all about monitoring your cash and stock position. Most established farming businesses have incomes over $500,000 and many have incomes exceeding $1,000,000.

Not only that, some now have more than one trading entity. For the vast majority, they are still essentially husband and wife partnerships.

Electronic cash books and online banking systems are available to make the monitoring of cash easier and quicker. Many are using them for GST coding, but not many are getting the best out the technology, and even fewer are using technology to accurately budget ahead.

Farm Plan can help.

How it works...

Good financial management is about knowing and understanding your cash and stock position. You don’t necessarily have to do the coding and budgeting yourself, but you must take full ownership of it and have a full understanding of what is happening.

The CEO of a large corporation will not pay the bills, do the GST return and update the budget. BUT the CEO will (or should) have a full understanding of the past, current and projected financial position.

Farm Plan can take one of 2 approaches for you. We can either coach you to get the best out of the available technology and generally up-skill you, or we can do it for you.

Our preferred technology is Cashmanager Rural by CRS Software, used in conjunction with your Bank’s electronic banking package.

Invoices should be entered directly into Cashmanager ready to be paid, and then exported into your Banking package. This allows for quicker and more accurate processing, paying and coding of transactions.

Cashflows should be updated both monthly and quarterly. Monthly updates are to take into account mistiming of payments and income. Quarterly updates are more to take into account commodity, production and price variations.

Two examples of a monthly update are:

1. A sheep farmer has budgeted to kill 5,000 lambs, spread evenly from December to April. A great season results in 1,000 being killed in December and 3,000 being killed in January and February. Having killed 4,000 lambs to the end of February means there are only 1,000 to go. Unless your budget has been updated it will be budgeting for 2,000 still to be killed. Potentially $100,000 less than will happen.
   
   
2. A dairy farmer is budgeting $80,000 of fertiliser to be paid for in February. They defer payment to May. Unless the budget is changed for the mistiming, the budgeted result will be over stated by $80,000.

Two examples of a quarterly update are:

1. A sheep farmer was budgeting 5,000 lambs to sell, but because of a better than expected spring, will have 5,500 lambs to sell. However, it becomes obvious to the farmer they have over budgeted on the lamb schedule. So the budget should be updated.
   
   
2. A dairy farmer being hit by a poor season and a drop in payout has decided to cull a fair bit of R&M from their budget. Production, payout and expenditure all need to be updated.

So if you are serious about making the best informed financial decisions for your business you need to have your budget updated monthly to take into account changes in commodity prices, weather, production and timing of expenses and income.

Why Farm Plan

With an extensive Banking history behind us, we understand the importance of strong financial management, and are well equipped to either provide our services for you, or coach you to become experts at it yourself.

Financial Management is one of Farm Plan’s core services, and we have the time available to help you strengthen your financial management skill set. This will allow you to make better informed decisions over time. If you compound better informed decisions over 10 years, what value will this add to your Business?

Electronic Cash Books

I know some multimillion dollar turnover businesses that have no idea what their cash position is expected to be at the end of the financial year. Yet they have to make spending decisions constantly. This is fine if they have a strong business, and some of them do. Those who don’t, need to pay closer attention to their actual position and budgeted position.

Electronic cash books have a lot to offer, and there are a few choices available. From our experience, Concepts Cashmanager is the most popular, and probably the most appropriate for the rural market. Possibly the dearest, but still value for money.

We like the fact that the coding is letter based rather than number based. It has the best budgeting tool, and generates some good reports.

Bank Link is also popular, and is easy to use for cash book coding. However it is not a rural based product and we don’t like the budgeting ability or the reports that are able to be produced.

Remember though you don’t have to do it yourself. Your time may be better placed working on strategy, or coaching your staff, rather than pouring over cash books.

What is important, is that regardless of who does it, you should:

• have a full understanding of the invoices being paid each month,
• understand the variance between the monthly budgeted and actual result,
• and update your budget on a monthly basis.

Timing issues, the impact of weather, production and commodity prices will all conspire to give you a false budgeted result unless you update your budget each month. With practice and good use of technology, it won't take long, once you have your initial budget completed.