Every type of business has their own unique approach to fiscal management and cashflow forecasting. In the past few episodes of "Building Your Multi Million Dollar Practice" we've been breaking down the different sectors and what accountants and advisors need to know to help these businesses grow. In today's episode, we are discussing the agriculture sector. Whether you're advising a big farm, a family-run farm, one that deals with cash crops, or not, predicting cashflow is the biggest challenge as agriculture is a risky business when it comes to forecasting.
Why is farming risky, you might ask? Well, farming on a cash crop means that all expenses are up front, whereas sales don't come until the end. The whole idea of the "options market" is due to farmers' predictions, making farmers the original "Las Vegas gamblers." There are more stable forms of farming, like dairy and chickens, where it doesn't take a whole season to product, but these still have their fair share of risk vs. reward.
When looking at any given farm, there are two main categories: large corporate farms, and individually or family-run private farms. The large farms have completely computerized their systems to make agriculture a sophisticated scientific process, and one of their biggest advantages is the ability to diversify their risk. Having farms in multiple areas ensures that a natural disaster won't wipe out their supply, and tying in with larger food supply chains helps them mitigate their risk. The survival of the family-run farms is more-so focused on obtaining capital and protecting their assets. Having a strong relationship with bank is vital, as the bank knows how to plan the risk into their loans.
Succession planning to increase valuation is important in mid sized and small farms, and creating more income in general relies on many factors. As their advisor, step 1 should be saving for a "bumper year." Lots of things can wipe out these savings, but to be great accountant, you must make sure you use smart fiscal analysis to create growth. After a strong relationship with a bank is established and savings are in the bank, some other factors that can create more income are:
- Crop rotation
- Soil preservation
- Side businesses/distributed risk
- Non cash crops (ie. dairy and eggs)
- Impact of property value
- Knowledge of statistics to predict price at end of season
- and many more
Listen to the episode to learn more about agriculture and how you can help advise, or book a time with our team to get started today!