With the COVID-19 crisis affecting many farm businesses, we chatted to David Seath from Brown Glassford last week about the impact this may have on the New Zealand agriculture sector, and how accountants can work with their clients to prepare for the challenges ahead.
How have you settled into remote working with clients?
The biggest difference for us at the moment is not getting on the farm, or our clients not coming in to see us - the total cut off of physical face to face contact. Our focus during this time has been about adopting new technology quickly - particularly with Zoom, Microsoft Teams, and undertaking more conference calls frequently. However we tend to do a lot of our work by phone and email already.
It’s different for various practitioners - if you've got a bit of experience with a client you’ll have a fairly good idea of what their business looks like from a numbers point of view, but also physically like what the farm looks like, what their stock and the characteristics are. This makes it easier to deal with matters and context when you know more about their business as a whole. It's harder to get context of a farm business, or the same quality of conversation by not doing it face to face.
If we’re in a scenario where we can’t get on the farm or have social contact for a longer period of time, then that’ll get more difficult. And ultimately, the face to face is the part of the job that many of us enjoy the most.
Do you think it’s more important now than ever before to gain visibility of your numbers looking forward?
There's definitely an argument for farmers to have a better understanding and be able to articulate what their business looks like financially to their bank or capital providers. That's going to be a big work in progress for us, particularly with financiers and banks. I think you've got to look at who uses that information. Then you think: ‘why is cash flow important?’ It’s important to understand what your liquidity is. If you've got a client who doesn't have debt or a significant working capital requirement, it might be less important. However, those who are more highly indebted, or near the upper level of what they can borrow, I think the scrutiny from that use of capital from their bank is going to get higher.
If capital starts to be rationed a bit more, or its availability is scrutinised more, you will need to provide more information to your bank before they extend capital or renew capital on similar terms. Yes, I think it'll be important for farmers to understand exactly what their cash flow is for the short term particularly (i.e. this current season), so they can satisfy those bank requirements. Otherwise they may slip down the queue for easy access to capital. I think it may be harder and more expensive than previously to get capital.
What do you suggest accountants will need to do to help their clients with achieving visibility of their numbers?
We meet with some of these clients a few times a year, running through an agenda which covers a number of topics, including finance and debt management, and capital requirements. I think we're going to cut deeper into our list of clients in doing that sort of work. That requires some more resources in terms of time, software, and people. I think the banks will be feeling their way a bit on that as well, although, where they know the client who has a good track record and isn't highly indebted, then I think the requirements for information and level of details may be less than if you're at the risky end, or if the bank is concerned about your position.
As accountants, we have to be prepared. We've need to make sure we have the capacity to engage more with our clients. With the current financial services model that a lot of firms like ours run, it's hard to leverage. We have a team of about nine of us and we look after roughly 300 clients; imagine spending one day a year with each of them - that's your entire year taken up. We'd be kidding ourselves if we think we can do it all ourselves. So what it requires of us is, developing capabilities so our people can do the work, and you can leverage these new requirements. We’d need to up-skill people to be capable of doing that work, and make sure we’ve got the right configuration of people, so we don't run out of puff. We also need to have the systems and software in place to do that. All of these things aren’t easy to solve overnight. You've got to change processes and people. It's a difficult challenge to pivot from one way of operating to another.
The other challenge is getting clients engaged in budgeting, and seeing the efficacy of doing so. It always starts with the client. Some will want to do it for themselves - those are the easy ones. Others will have to do it if their capital lenders or shareholders require it. These are the ones which will be a bit harder as they may be a little resistant and not understand the value, if they are doing it for somebody else and not for themselves.
How do you think rules and regulations have changed with COVID-19? Do you think this will impact the profitability of farm businesses?
Agriculture is a specialist sector with many rules and regulations for compliance. If our clients don’t get the compliance part right, they’re in for extra costs down the track. On top of us helping with compliance, they also expect that we’re adding value onto that and looking into the future with them; helping with the running of the business, or developing and expanding their businesses, which are large.
I think it's a bit early to talk about profitability - we’re only a month in, and the state and government agencies are making lots of decisions and changes. What we do know is that we’ll see a lot more in changes - it might not necessarily get more complex but there will be new things to learn. There's always going to be room for a specialist in the agri farm accounting area because it's such a big part of the NZ economy.
New Zealand relies heavily on tourism and agriculture as our exports. By the current pandemic taking tourism out of the equation for exports, agriculture now makes up almost three quarters of the value for this country. It naturally touches a lot more businesses in proportion to what it did prior to COVID-19. In light of this, we need to exercise caution. We need to ensure we help our clients to get on top of their finances, but agriculture right now is a good space to be in.