Farming As Long As You Are Breathing
So you and your spouse have made the decision to keep farming as long as your both keep breathing, regardless of what your children may do or not do. But you acknowledge that farming is getting more complex. Expenses increase at the farm gate more than the New Zealand cost price index, but you love the industry. What are a few issues, areas and thoughts that keep you on top of from the outset?
Farming is getting more complex. Don't fight this. Run with it and keep your balance sheet constantly at your shoulder, not behind the rubbish in your office.
You and I need to read for no less than 30 minutes per day on issues that reflect or affect our respective businesses – forget the pictures.
It is surprising how many people in this country don't want to work. Leave this group alone and keep them off your wage book. You will be paying for them in your taxes but that way it is less direct and less painful.
Farming job satisfaction and farming profitability in New Zealand don't run together for about 70 per cent of New Zealand farmers. You though need them close together.
A sheep in the hand is still worth about 20 in the bush. You need to be close to your profits but even closer to your losses.
One of the future problems for some farmers is that their on farm options may be wide enough but whether these options are profitable enough and whether you have the ability to make them profitable is another story.
When you have the chance to discuss things with a crackerjack farming couple, it is the what if questions that you may learn from most. That is, what would they do differently if they had the chance to do it again.
Don't under-estimate your farm overdraft requirement for the next season just because you and your banker feel good about them. Always leave at least a five per cent buffer for unforeseen expenses and lower income. Everyone dealing with you hates these surprises later.
Bring your financial papers into your accountant early on whether the figures are good or bad. If they are good you will have more time up your sleeve before the taxes are due; if they are bad you may be due for an early refund. Either way your banker will prefer it and so will your spouse.
The health costs of New Zealanders are increasing by about 15 –17 per cent per year. The Government is constantly increasing its health budget and your personal health insurance contract is increasing every year. For many they won't be able to cover their health costs when they need to and they won't be able to cover the annual insurance premium cost either. You and I need to be putting aside probably an extra $1,000 - $2,000 per year to cover this key cost. The whole country's health cost model looks as though it needs re-grouping and re-funding and this will happen on your watch. Be ahead of it.
There is nothing wrong with your children or your grandchildren having student loans as long as it is to purchase an asset that should outpace inflation and/or will provide a strong future return such as education. Don't get judgmental here; get in behind them and top them up as required.
You and I are going to read about the world's income inequality and the world's asset inequality. We will both get sick of it but it is a problem in New Zealand. The top one per cent control 18 per cent of the country's wealth and in the USA the top one per cent control 40 per cent of the country's wealth. The income figures are also similar. The key is to drop the wealth and income of the top group or increase the wealth and income in the bottom group. The latter approach looks much more palatable. Several EU countries have been looking at this very seriously. Parts of Brexit and Trump have triggered these two issues. Many people are annoyed about it and want action.
One of the ways of looking at these issues is called a 'universal income.' Everybody, once they turn 21 years of age, would receive around $5,200 per year ($100 per week) of unearned and maybe un-taxed income. In a country like New Zealand, with two million people over 21 years of age, the annual cost for Government would be $10.4 billion. This is almost as much as National Superannuation. This is obviously not a runner without some major changes elsewhere. What's the point here? To fix these inequality issues there needs to be some major changes in thinking.
In some ways food stamps and educational stamps would be a better form of universal Income. The USA is still deep in food stamps right now with 43.5 million people receiving food stamps costing more than $70 billion per year.
You will have no trouble saying yes to some things – but saying no is getting more and more important. With family, banker, contractor, neighbour and friends you must package no very carefully. There are gentle no's, clear no's and no's that leave no doubt at all.
Don't put too much store on historical norms. Work on the here and now. Don't put too much store on economic forecasters. Listen to them but don't bet on them. If you have good instincts then run with them. The economic forecasters over the last 10 years have struggled to get to 50 per cent.
You should be able to tap into the relevant farm experts in every aspect of your business. Never hesitate to lift the phone.
Be careful with emails that want money from you. Don't assume anything. We are going to strike more of these. They will get better and better and look like part of your normal everyday business.
You can't read everything. Prioritise your reading just like your capital spending.
Think about the place and the timing of difficult meetings you have coming up. I find meetings after dark often have a dark outcome and meetings in your kitchen or living room, where you are more comfortable, result in better decisions. Defer difficult meetings only long enough for you and your advisors to have completed the homework on the issue.
You will get best value from your farming advisor by framing your question carefully and precisely. Broad general questions may be useful but most of these you generally know the answer to. Follow through with questions on specific issues. The top farming group deal with specific priorities and timing. The bottom group often don't have advisors or deal constantly with past issues that timing can't fix.
Learn to listen before judging. Forget perfection. Excellence is the key objective. The world is becoming more specialised. Don't guess and hope. Planning comes before implementation.
About 93 per cent of your farm potential is where maximum or optimal net profit is. There is no change here but it will be more accepted.
Don't throw away your old diaries. Keep looking at those dates; key events and issues tend to repeat. Unfortunately what goes around comes around again and tends to have more baggage with it. History will repeat mistakes just like you will. Learn to see a mistake from a distance.
Sometimes interest on a loan to replace plant items is better than constant repairs and maintenance. No magic here but hard to accept sometimes at your peak overdraft.If you can write down within two minutes six business areas/issues that you know you are weak on then you have a very good chance of being in that top quartile group within three to five years.
Don't make two big mistakes unless they are 30 years apart.If you can't afford it then you can't afford it. Value and cost are doubtful bed fellows. Always look at these two separately.
Grandparents very much want to see their grandchildren well educated. Keep this in your memory banks. How many children and how many marriages can you afford?
Every so often you will learn more from poor farmers than good farmers. It will be very clear what not to do.
Life without people would be so much less complicated but you are stuck with it. Sometimes it is hard to be ruthless with money and gentle with people. Work on the principle though as it is a good starting point.
If you can sing then sing sooner rather than later. Celebrate those small successes and gains. If in doubt bank it.
Always listen to top advice but interpret and implement it to suit your and the farm's ability. Don't develop further than what is optimum. There is no sense in generating an additional $15 per stock unit if you are spending $15 or more per stock unit to get there especially when you will not have allowed any value for your own time and input in this $15 cost.
Pita Alexander is an accountancy and agribusiness director at Alexanders
9 August 2016