Financial management key to final nett profit

Waimarino Bulletin, Volume 5, Issue 11, 11 August 1987, Page 11

Financial management key to final nett profit

For all farmers the annual visit to the accountant or financial adviser to inspect the annual accounts and discuss last year's financial performance is a necessity. Often the importance of this visit is ignored. In the past New Zealand farmers have been able to survive by means of both sound and all too frequently, not-so-sound financial management techniques. However in todays economic and market dominated farming climate total "financial management" is the key to creating a satisfactory final net profit. In an address to the recent Ruakura Farmers Conference local farm consultant Mr Neil Forster emphasised that "financial management" is not just writing a budget for the bank manager or forecasting a cashflow at the coming financial year. He said that today financial management enables a farmer to: • Know the exact current state of all accounts as well as the complete on-farm financial position. • Predict, using present indications, what the cashi position will be in the future, monthly or annually. • Determine the net profitability of each enterprise on the property and associated costs within those enterprises as a whole. In todays economic climate merely bemg able to do one of these is not good financial management. For example, a cashflow is generally produced for a bank manager with one aim in mind - to produce figures that will persuade the bank to gr^nt overdraft facilities. Although this is important and useful the advantages of the cashflow end there, and it is wasted as a "predictive tool". Similarly, it is not good financial management to keep an up-to-date cashflow unless it is providing exactly the information needed for the property. Most cash books have no predictive capability without a great deal of additional time and effort.

since the introduction of GST many farmers have maintained a cashbook for the purpose of completing GST returns - a limited end use of the cashbook out of proportion to all the time involved and to the potential real benefit. A good financial management system must be designed to suit each individual property and must - (a) Acknowledge the individual enterprises on the property, e.g. sheep, wool and cattle and summarise the net value to the property. (b) Show at any stage exact details of current income and expenditure, thus establishing the exact cash position. (c) Integrate with cashflow predictions to show what will happen under current management strate-

gy or any possible alternatives. A farmer with such a financial management system will be able to detect outside influences and market signals and apply them immediately to the present situation to see how they will affect the future. King Country farmers appear to able slow to utilise the excellent facilities available through accountants, stock companies and farm consultants, most of whom have access to computer programmes designed to assist in financial management. It is estimated that only 20% of local farmers are using a "financial management programme." At an average cost of 15 cents per stock unit and two hours per month there is no longer any excuse for ibcal farmers to have poor financial management skills.