Ten business strategies to future-proof the farm

Running a farm is managing a business. As with other businesses the principles of operating a sound and profitable venture are the same.
While a farming business can be more susceptible to external variables such as weather conditions and market fluctuations, there are a number of business practices that farmers can implement to lessen the impacts of these events.

  1. Cash-flow forecasting – One of the most common business mistakes and the reason for many business failures, is poor management of cash-flow. Understanding the flow of cash within your operation is essential to making correct decisions around expenditure. Cash-flow forecasting should include consideration of reducing bank debt; taxation payments; capital expenditure and next season’s crop and livestock expenses.
  2. Capital expenditure forecasting – A plan detailing capital expenditure can assist with future equipment acquisitions. Mapping out effective life and a replacement program can highlight possible cash-flow issues and help in cash-flow management.
  3. Regular debt/finance review – Regular reviews of bank loans can present a host of cash saving opportunities, such as reducing interest payable and bank fees. Additionally, it is important to ensure that the most appropriate security is in place across the finance facilities.
    Consideration of financing alternatives can then assist to alleviate cash flow issues. Hire purchase vs lease vs hire options can be reviewed based on assets to be acquired and the style of business cash flow that can service the debt.
  4. Group structuring – The correct structure for your operation can provide income tax flexibility, degrees of asset protection and succession ease. A review by a qualified advisor can provide recommendations on the appropriate structure for your operation.
  5. Off-farm wealth creation – It is beneficial to direct any surplus profit into diversified investments outside of the agri-industry, effectively from a risk management perspective. This can be done via self-managed superannuation funds, trusts, shares, property or other wealth creation entities.
  6. Succession Planning/exit strategies – A detailed plan around generational asset shifting or merely a strategy to exit can provide a sense of guidance and security for all family members. This may ensure that the family unit remains intact and that family members are remunerated equitably during operation and on exit and succession.
  7. Estate planning – Wills and other documents are essential to ensure assets are directed appropriately in the event of death. A review at least every five years is necessary to account for changing circumstances. Consideration of strategies such as utilisation of testamentary trusts and integration of superannuation is important.
  8. Review of superannuation and Self-Managed Super Funds (SMSFs) – Concessional contributions to superannuation can enable you to reduce taxable income and increase off-farm assets. This also assists with succession planning and exit strategies. The recent surge in the use of SMSFs over the last decade has provided primary producers with alternative options in respect of the utilisation of superannuation entitlements and also a tax effective way to hold business real assets like farm land.
  9. Farm Management Deposits (FMDs) – Using a FMD account to deposit and withdraw funds from your annual cashflow will enable you to maintain a consistent level of taxable income, avoiding fluctuations in tax payable. This assists you to manage taxable income each year, and by depositing income into an FMD, allows you to build an off-farm asset.
  10. Income deferral – This strategy allows business owners to reduce tax by deferring sales into the following financial year. Livestock revaluation or stalling sales receipts can be considered.