How to Make Business Losses
Years ago there was a well known discussion between a young journalist with an older farmer who had just won Lotto.
The Lotto winner was asked what he was going to do with the money and he replied he would keep farming until it was all gone.
Well, not much has changed.
Some years ago the writer spent three years as a farm financial trouble shooter around New Zealand and learnt some real lessons as a result. One of the lessons was how some farming couples always seemed to make ongoing business losses. That got me to thinking about what tended to be the characteristics of people making these losses.
Quite often they had a poor apprenticeship. I would say about 75 per cent of business failures come about from this and insufficient opening capital or equity.
More often than not they would have an attitude that things can only improve. In my experience hardly anything improves on its own.
They would prefer not to have to work as hard as Mum and Dad did and they never run the day – the day always runs them.
Often their downfall can be traced to "iron disease" – that misguided love of plant and shiny steel. For them the colour of the tractor is crucial. There is a tendency among them to buy things on the basis of 'like' rather than 'need'.
They find the computer can't seem to make a profit. They find the bank manager seems to be speaking a different language. I was told several times that they never drench, drill or drove stock in the weekend – which is exactly what the good operators always do if necessary.
They are convinced that GST means 'getting stuffed thoroughly'. But they are happy with GST because it is a substantial source of cash income – more refunds than payments.
Loss makers would have tried farm consultants but found them difficult and constantly wanting to make changes to existing farming systems. They have a really good grip on how losses come about and whose fault it is.
Personal drawings have exceeded their net farm profit for years by quite a margin. They took over from Dad and didn't have time to work for anyone else.
They are always on thin ice financially – but often they cannot see it. They have difficulty in packaging the word 'no' and find saying 'yes' much easier.
He hated mathematics and bookkeeping at school because it was so dull and boring – and it didn't seem to lead them anywhere. Furthermore, the profits the accountant keeps talking about never seem to crystallise into profits let alone cash. With their ability to make losses they think there is little need for an accountant.
Spouse keeps bringing up the lack of income and cash just like the accountant but he feels much of the problem they keep referring to is just smoke and mirrors. They find accountants, solicitors and bank managers difficult and far too serious and feel that everything turns in due course including losses.
If they feel they can't do something then they won't.
They can talk the walk but walking the talk is quite another matter. Farm field days are hard work for them because there are too many other farmers who seem to be on top of things financially and talk a different language.
Never have they understood the advantages of being an autumn spender. They really struggle with change and like things the way they were 25 years ago. The old times were so good when people like them were much more appreciated.
They find some people in the local pub who, after a while, seem to talk real sense. They would definitely vote for President Donald Trump and his wall.
At times they wonder whether education is all that it's cracked up to be. They never had much schooling and it doesn't seem to have affected them.
They feel cash is over-rated and that profits are not everything. Nor do they feel that income tax is a major issue – losses and income tax hard to offset.
The bank manager talks about debt reduction but "lives in a different world".
It should be remembered that he is often a good husband, a good father and good in the community. However, being in business for them gets low priority because losses are just not enjoyable. Often they have a good personality and get on well with people and family. Seldom though does business crop up in their discussions as business in the main is a pain area and has been for some time.
They are looking forward to national superannuation as it is a guaranteed income source which they need. Farm succession for them is not complicated – it's just not possible.
He finds peace in the back paddock and he also finds that cold beer at times can be better than any advice.
Often they have a great sense of humour which is essential with the constant losses they make.
They stopped keeping a diary because it got too frustrating. The idea of a five year budget is good because it gives him to time to prove things – by that time also they will have a new bank manager.
They don't get too stressed with losses. Losses are a part of life and deep down they feel they could help farming people who get so worked up about all sorts of business events.
They buy Lotto tickets regularly as it would fix a few things and would give them a better chance of making a profit.
In the three years the writer spent with farm financial trouble shooting many of these individuals were encountered. Next column I will suggest what the reverse of this group does to make a real success of farm business.
Pita Alexander is an accountancy and agribusiness director at Alexanders.
9 February 2017