The middle of a drought may not seem a great moment to be planning for the future on a family farm, but tough times are exactly the right time to be talking long-term business strategies.
Surviving parched conditions like those hitting much of eastern Australia in the past year or more can be hard enough, but drought can also trigger unexpected dangers for farm businesses – even financial catastrophe – when everybody is distracted by dusty paddocks and hungry livestock.
The very least farm families should do in tough times is be aware of the risk of not communicating about transition and business plans or family needs, said succession planning specialist, Bill Adams.
“Farmers tend to get very focused on feeding their livestock or trying to generate some cash flow – they can close down or put off strategic decision making,” said the managing director of succession advisory firm, Next Rural.
“Be aware the distraction of dealing with drought or other tough times can be a trap.
Better to be talking now and trying to address issues than trying to deal with a lot of postponed priorities later on when your time and budgets are strained
- Bill Adams, Next Rural
“Drought, if nothing else, is a good time to do a general review of the structure of a business.
“It’s far better to be talking now and trying to address issues than trying to deal with a lot of postponed priorities later on when your time and budgets are strained by the business of restocking and getting back on your feet.”
An unpleasant reality of drought and the stresses caused by similar farm sector challenges was they may also trigger marriage breakdowns, or a collapse in family business structures as one or more partners opt to take a break and go their own way.
“Involuntary situations – death, disaster and divorce – force us to make decisions when we’re still in pain or distracted and not in a good situation to be forced to think carefully,” he said.
“Suddenly there’s pressure to fix up an estate, deal with bank commitments, bills or other expectations.
“If you’ve already been making voluntary planning choices – even nine month to three-year strategies – you’ll be in a far better position of control.”
Mr Adams, whose services have been adopted by the National Australia Bank to promote longer term and succession planning among its agribusiness base, said drought was at least a time to start a quick transition or succession plan.
Expert help and funds
While professional planning costs (typically about $10,000) were a potential deterrent or used as excuses to delay, he said government-backed advisory authorities offered funding help or expert assistance.
All farm partnerships needed to be considering, or at least aware of, a series of transitions for the future of their business and family.
These included planning for a management transition (who will run the farm); business asset transition (plant and livestock); property transition, or whether the land will remain in its current ownership; and next stage of life transition for senior generation family members who may be expected to live into their 90s.
Succession plans also needed to include frequent communication and planning with off-farm siblings, and managing their expectations.
“It takes time to do all these things together, so getting started with a quick plan which can be reviewed in 12 months is important,” Mr Adams said.
“But once a full strategy is worked it might be good for 10 years, although should still be reviewed annually – it’s a living document.”
Banks must plan, too
NAB’s regional and agribusiness customer executive, Khan Horne, agreed managing drought was not just about battening down the hatches, keeping stock alive and riding out the bad season.
More than ever farm businesses needed long term strategies, and to anticipate their financial needs and cash flows for the coming six and 12 months.
“As agribusiness bankers we also must plan for our customers’ funding needs, too, so the more we know about somebody’s business strategy for the next year or five years, it helps us help them deal with a bad season,” he said.
“Droughts also trigger opportunities to do things – clean dams and irrigation channels, maybe even upgrade irrigation gear.
“And fuel bills still have to be paid.”
Agribusiness bankers better positioned to provide funding for these costs if they were planned for in a bigger business strategy.
We need to work well ahead with farmers to anticipate what payments have to be deferred or maybe re-contracting loans
- Khan Horne, National Australia Bank
“Obviously if a winter or summer crop income is not looking likely to eventuate, there’ll also be a lot of loan repayment funding not flowing into the sector,” Mr Horne said.
“We need to work well ahead with farmers to anticipate what payments have to be deferred or maybe re-contracting loans, or even considering what the Rural Adjustment Authority might be able to offer – it’s a team strategy-making relationship.
NAB’s Moree agribusiness manager, Marianne Pollock, believed farmers, even smaller clients, were recognising their planning needs and were far more organised than 10 years ago.
“Budget planning technology has improved and helped, too,” she said.
Many businesses now prepared three or four different cash flow models to help anticipate different management strategies.
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