Finance with Don Fraser Fraser Farm Finance

These thoughts and my life experiences may help you improve your future business decisions:

• It takes very little effort to be better than the other guy: That little extra effort can result in a huge return.

• Focus on the basics and only experiment on the fringes: Getting the basics right is everything. A rural banker recently insisted that all his clients do a simple business plan and focus on the basics to ensure their focus was in the right place. This might mean that the correct and adequate fertiliser to grow the maximum amount of grass, harvested with the correct number of animals sold to yield the maximum return, with an operation of minimal expenditure.

• Take your profits when you can: For example, cattle prices are pretty good before Christmas, the summer dry is looming, but you hold the cattle, prices recede and you run short of feed. Where have the profits gone?

• Do not hang your hat on one good season and stop focussing on the droughts: Remind yourself of the average sustainable production levels.

• In a down cycle, move quickly to minimise losses.

• Fully focus on your business and watch out for waging off farm wars with little hope of winning: I remember a farmer who sold a stag for $25,000. The purchaser said it was no good. The farmer should have refunded and taken the stag back, but no, he spent $100,000 defending his stag.
• Farming families must not let problems grow: Get the problem out in a meeting with a facilitator, lock the door and sort it out.

• Farms can be a bottomless pit for expenditure: We want it perfect, but again, stick to the basics and essential items, it will never be perfect. A good example of this can be seen in the dairy conversions where costs over runs on bank approved facilities were stupendous. Some of those people now find themselves over indebted and unsustainable.

• Maximum production per cow, per hectare is not maximum profit: Focus on profit, not how well your cows are producing. I well remember the 80s and wanting to start a farm discussion group called ‘farming for profit and fun'.

• Aim at maximising ‘free cash': This cash is for drawings, education costs, taxes and holidays. Do not be tempted to spend money to keep your tax down.

• Watch out for iron disease: Many farmers spend inordinate amounts of tax-paid cash profit on iron. Yes, you can argue that you need yet another tractor, but it is chewing through real free cash and if it is on HP the figures get worse as there is interest cost and spread payment which will impinge future cash flow.

• If you make a mistake, then fix it straight away: No matter how far you have gone down the wrong road, turn back. Apologise to those affected around you. Mistakes are just that, learn from them, regroup and move forward.

So, I need to acknowledge Pita Alexander, accountant from Christchurch as an inspiration and my own life time of valuation, farming and finance for the experience that takes a lot longer than knowledge to acquire. With my work, I realise how important it is to get the basics right and the rest will follow. In these times, it is essential to focus down on what is important and forget the rest.

These are the opinions of Don Fraser of Fraser Farm Finance. Any decisions made should not be based on this article alone and appropriate professional assistance should be sought. Don Fraser is the Principal of Fraser Farm Finance and a consultant to the Farming Industry.