Financial literacy can be farming families greatest challenge

Solicitor, farmer, mother and 2017 Nuffield scholar Claire Osborn Booth runs Booth Agriculture at Geurie, NSW, with her husband Brendan.

This includes horticulture, grains and seed crops, as well as livestock breeding and trading, a business the couple built from scratch with incomes from other professions.

During her time as a solicitor specialising in succession and estate planning, Ms Booth said she saw “a decline in family farms getting it right in succession”.

Ms Booth travelled to New Zealand, the US and Canada to find what the key to growing the family business was, and how those businesses were successfully transitioning through the generations.

 “We really aren’t farmers anymore – going forward as we decide to embark on a change process we probably need to acknowledge that we are business owners, and that is our first and foremost job,” she said.

“We need to learn that we are business people and business people always pride themselves on their financial literacy.”

She said those businesses she found which were going from good to great did two main things – thought long-term and focussed on capital growth.

“Businesses who were able to achieve wonderful success in their succession arrangements were those that really understood capital growth. Sadly what I saw around the world I don’t typically see in Australia,” she said.

“If you can understand debt and the role of capital gains, it is something which is going to place you in good stead, it will also fundamentally assist you with navigating through the path of banks and succession.”

She encouraged businesses looking to grow to know their numbers.

“I encourage you to invest in financial literacy, as boring as it is, it is wonderfully liberating to be able to tell your neighbour that you bought the next door neighbour’s farm because you are a bit of a nerd,” she said.

“We are constantly and utterly focused on our figures, we review them on a monthly basis with a business coach, we spend maybe every six to eight weeks with our bank. Recently we had the opportunity to purchase a new farm…within 36 hours (the bank manager) had said yes.”

When it comes to approaching your own bank manager, or potential lender, Ms Booth said there were three key elements needed to be fully prepared and on the front foot.

“Spreadsheets not for 12 months, spreadsheets for five years. Having a really good crop rotation or business plan in place which provides three functions – one below average, one what we kind of think, and thirdly maybe which could happen if the moons align, coming in and providing them via email at least a week before you have your meeting,” she said.

“Secondly, having a vision, saying where are we going and what are we doing, and not just five years, I am talking 10, 20, 30.

“I asked (our bank) NAB recently what their interest rate would be for the next 15 years…I said if you reward me with really low banking margins, I will reward you with loyalty and got told I talk like a corporate and I said ‘I know, I am a small family farm I just want to know where I am going’ and they said that long-term planning was completely absent.

“And the third thing, be able to show that you are willing to sell assets if it goes pear-shaped, so having a 10 point plan, what am I going to sell, where is it going to come from and how easily can I sell those assets, and providing that as an ‘if the shit hits the fan this is what I am going to do’.

“Those three documents provide complete and utter confidence to an equity partner, whoever that is, that you are going to be a wonderful person to do business with.”