By Dina Veljanovska
With the evolving financial and social situation due to the pandemic, farmers will be under increased pressure to re-evaluate their immediate financial future while maintaining their current level of productivity, helping to ensure that our largest industry remains the backbone of the economy.
Aligning your long term financial goals with your financial performance has never been more important than now. You can model out changes or ideas against your current financial situation.
Why is it so important for farmers to future proof their business?
The sudden economic impact of the last few months brought to light the importance of having a strong balance sheet that can withstand market swings. Changes in export markets mean income streams are highly variable. For example, in NZ, a lower Farmgate forecast for dairy and new processing protocols for sheep and beef farmers will affect profits and ultimately, incomes.
On top of this, external factors such as droughts can be a looming worry for farmers which can affect production. This is especially relevant in New Zealand, with the Northland and Waikato region having critically low levels at the moment.
These factors are driving farmers to look at increasing their equity position, reducing expenses and driving greater efficiency in production.
Now Where How
With Scenarios, you can create a long term, high level budget that provides a three way view (profit & loss, cash flow & balance sheet) of your farm operation. See further down the road with a detailed plan of what can happen anywhere between 2 and 10 years.
Start by building your “now”. This is a business as usual plan that takes your last 12 months of financial data and steps it forward by 5 years.
“Where” would you be in 5 years? Run specific scenarios to future proof your business in this changing world amongst a variety of factors. You can create “what if” scenarios and assess different opportunities quickly and easily. You can base your scenarios using existing Figured and Xero data or start from scratch and plan out an entirely new scenario, the choice is up to you.
You can look several years into your business’s future based on a major financial proposition, variances in commodity prices or key performance figures without having to complete a full cash flow budget.
Finally, “how” can you set out to achieve this? You can create a 12 month plan that helps you translate your long term goals into a tailored, actionable and achievable short term plan.
Core benefits of the scenario product
Create or import your source of income & expenses
- Easy to use Import function to import Figured forecast & trackers or Xero actuals data.
Enter your Assets & Liabilities.
- Bring your entire financial position to one place using our A+L function. We’ll calculate handy stats like your LVR & Equity Position too.
Model the change that you want to make.
- Changes to A&L, purchases of a new herd, taking on a new loan, or even just business as usual.
Want to get started on aligning your long term goals with your financial situation? Check out this webinar series on scenario planning and building out your plan to get started.
For a real life example of a farmer that has benefited from undertaking this planning, check out this blog.