On behalf of the FIDC Team, let me renew our thanks to all who attended our ‘Farm Finance’ workshop last week.
We at FIDC are building a programme of assistance to help improve farm business performance.
This session was intended to be a timely intervention - while wool prices are good - to ensure farmer owners/managers have a grip of all available controls (agricultural, genetic, financial, marketing, and so on) such that if a downturn comes, they have resilience and a buffer against the lower incomes. This means getting farm performance up to the max, and part of this is being able to run the finances, not to let them run you.
The fairly basic session we’ve just carried out aimed to meet a range of learner needs, with the goal of making sure that financial information is gathered, interpreted, and used to keep the farm in tip-top condition; going from farm, to farm business.
With the arrival of the Wool Innovation Director, Ed Dugan, we took this opportunity to see how farm ‘benchmarking’ could develop – taking farmers’ better understanding and more rigorous use of their financial data as just one way to make informed farming decisions.
We set out to show during the session last week;
· That a Business Plan is always needed. Not just to gain funds to buy the farm, but as a way to set a goal, and monitor progress along the way. We stressed that it’s not just a ‘do once and forget’ exercise, but is something you return to, revise, and adapt. We were struck by the fact that few farm enterprises run to plans.
· That financial information is not only a requirement for others – tax, statutory obligations, lenders – but is a tool for you as business owners/managers. We outlined the differences in financial accounting and management accounting (this latter being the one we value most, in decision making). Also, we pointed to the need to forecast as well as look back at how things went. We noted that not many businesses did forecasts, in the belief that “what happens, happens” – weather, world prices, equipment failure, and so on.
· We set out the ‘three pillars’ of financial management – cashflow; profit & loss; and balance sheet – explaining to groups (that readily grasped the concepts) that cashflow shows how money comes and goes over time, that profit and loss shows just what you’d expect it to at a year end, and that if you want to see if there is any value building up in an enterprise you look to the balance sheet.
· We demonstrated how a few small changes in a cashflow management (e.g. credit controls) can aid the business and showed you that you might need less capital to start something, or need to borrow less once going. Also, we looked at how changes to planned sales volumes, costs, overheads, and prices can secure better net margin and net profits.
· In looking at assets, liabilities and equity on the balance sheet, we showed how you might build long-term value in a business – useful if you want to sell it, and essential to understand if you are comparing farm enterprises for sale. We noted great interest in the value of brands.
All of this pointed out that you can actively manage finances and make decisions - with more and better data; for example, if trying to decide should you diversify, or add a new farm enterprise, or sell now, or buy later?
We hope this short course, and the workbook, and any further help asked of us, will give participants confidence in making these farm enterprise choices. So, how does this square with farm benchmarking and the delivery of the different actions agreed within the Wool Innovation Programme?
You need to know your costs of production, and in competitive and volatile markets to drive these down. Certain things cost the same across the Islands and some differ when you or a neighbour are buying (or selling…). Same when comparing our wool production worldwide; to be competitive we need to know how we stand in relation to others.
While short, Ed Dugan considers this trip as valuable in the better understanding of the West Falkland climate and environment, the wool production enterprises and the issues around the logistics and movement of goods and stock.
The need for robust forward preparation of resources and staff, combined with a good fall back plan may remain part of West Falkland farm gate to wool store movements. With wools return to that of a valuable product, the rewards for managing the timing of the marketing should be seen as a key part of any on-farm business plan.
No doubt Ed will be back to you in the coming weeks to keep you informed on the delivery of his Programme.