Start Planning for Next Year
It is great to see some early summer rain, which will put farmers in good stead for the rest of the season. As we approach Christmas, now is a good time to start planning ahead for next year.
Cash Flow Forecasts
Cashflow is the key to all businesses and farmers businesses are no exception. For dry stock farmers, cashflow is excellent in some months and almost non-existent in others. Dairy farmers have a more consistent cashflow, although this depends a lot on both climatic conditions and overseas commodity prices.
It is important that all farmers prepare some sort of cashflow budget for the year ahead. Most farmers will now have a good idea of their anticipated livestock sales and for dairy farmers, the production that they are likely to achieve. Cash flow forecasts should include all income and expenses and this will give hopefully a good surplus in which are able to take a living as well as pay their tax and hopefully reduce some debt.
Lamb prices are certainly up from last year, while the dairy payout is also up. A good rule of thumb is that a portion of the business profits should go back to the owners, a portion on tax and a portion on debt reduction. With good results anticipated this season, the portion going back to debt reduction should be higher than normal. Cashflow forecasts can be worked out using programs like Cash Manager or BankLink. Microsoft Excel is also very useful for forecasting.
With interest rates still at reasonably low levels it makes sense to reduce the overdraft (which has a higher interest rate) before paying back core debt.
KiwiSaver has now been in operation for over five years. The government incentives and employer incentives, if you are an employee, make it well worthwhile to be part of. Unless there are special circumstances, I would generally encourage all people of working age to go in KiwiSaver. For those that are self-employed it is simply a matter of going and seeing your bank or an investment advisor and getting signed up. For self-employed people to take advantage of the government contributions they would need to put in $20 per week to gain the $520 per year from the government in addition to the $1,000 kick start.
ACC is one of those costs that are unavoidable if you are in business. The option of Cover Plus Extra is a good one if you are new in business or if your profits are going to be lower than the actual cover you would like if you have an accident. Cover Plus Extra is like an insurance policy and you can choose the level of cover that you like (so long as ACC believe it is reasonable). For farmers and self-employed people ACC Cover Plus Extra certainly has its merits and you may wish to look into this.
Farmers and their staff are incredibly hard working people. It is important that both employees and employers have adequate time off over the festive period to refresh and hit the ground running in 2014.
I would like to take this opportunity to wish all farmers and business people a happy Christmas and New Year and wish you all the best for 2014.