If you’re an Aussie farmer, the stereotype of the battler is an all too familiar one.
Yet for all the lean times, there are times of plenty as well.
The challenge facing farmers therefore is this: how do you use these boom times as a defence against the inevitable downturn?
As a strategist who provides specialised financial advice for farmers, I feel that primary production, or agri business, is probably the most challenging industry to be involved in, but, it’s a challenge that I relish and that, in the end, can offer great rewards.
The risks and rewards of agri business
As every farmer knows, outside the normal influences faced by businesses such as cashflow, staff upkeep and economic conditions, agricultural producers also have environmental factors to contend with, from wild weather to stock-decimating diseases.
On top of this, agri businesses are traditionally price takers rather than makers, while some of their competitors gain unfair advantages through economic subsidies.
But that’s just one side of the coin, because right now business is booming.
That’s right, for all its downsides, involvement in the primary production industry can also be incredibly rewarding. And right now is one of those times.
With unprecedented high prices for livestock, wool and other agricultural products, the industry is in a better place than it has been for years.
But let’s not forget, that with the good times comes the realisation the party won’t last forever. It’s all part of the inevitable cycle of life that is farming.
So, taking into account the buoyant current climate for farmers, you need to ask yourself this one very important question:
What steps should you take now to weather the boom and bust cycle?
There are five key areas I think you should focus on during the good times. These are:
Don’t just work on the land, work on your balance sheet
The resilience of any business, especially agri, is maintaining a strong balance sheet and outlaying measures to keep your assets greater than your liabilities.
Cashflow is key – don’t let it flow out the door
When cash is coming in, don’t squander the opportunity on short term perks, but focus your spending and saving on long-term business needs. Due to the nature of farming, tough years often seem to be the majority. However, I’m often amazed at how quickly the tough times are forgotten when there’s a bit of cash around. It’s easy to be tempted by new cars, tractors and the latest equipment. Don’t buy them because you can. Buy only what you need. Instead, seize the opportunity to invest in purchases that will help your business stay productive in future tough times.
Plan and focus – keep your head in the game
When business is going well, it’s easy to get sit back in the comfort zone. If anything, it should be the opposite. Times like these present a prime opportunity to reenergise, refocus and plan for the future. Evaluate your business plans so you can pinpoint and avoid past mistakes.
Build a war chest – there’s a battle up ahead
Use your successes to improve cash position and save for a rainy day or worse still – drought.
Get help with your finances – an expert can make all the difference
There’s always more to learn, and businesses today, especially in the agri industry, can benefit tremendously from asking for advice from experts in their chosen field, whether they’re accountants, financial planners, estate planning experts or representatives of your bank.
So how are you going to make the most of the good times?
You’ll want to enjoy them of course, because the fact is, they don’t last. But don’t lose sight of the opportunity they present to get you safely through the next down cycle. Use these valuable moments to bolster and protect your business from whatever the future has in store.