Back to business

These steps cannot be taken immediately, but are important facts to examine with advisors and partners during times of relatively less stress so you are prepared for the next challenge.

Financial Buffer
Aim to establish a financial buffer of 10-20% of Gross Farm Income (GFI), once debt servicing has come down below 20% of GFI. Remove this buffer from working capital into, for example, a term deposit – this forces better cash-flow management.

Structure Of Business
Is the current structure of the farm business the most appropriate to minimise tax, maximise flexibility and be in a position to obtain available assistance for support of the farm family? Investigation of options by trusted advisors should include looking at the implications of adopting a company structure.

Type Of Business
Good business people recognise the separation between property investment, food and fibre production, and lifestyle, and weigh up the returns to each activity separately when making long-term strategic decisions on what business they should be in.

Tax management

The following advice comes from Andy Vallance, Chartered Accountant, Roseingrave & Vallance, Masterton.

1. Do a reasonably accurate work-out of the operating cash result for the year. If this is too hard, write down what has changed – i.e. lamb price down $10, sold an extra 500 lambs or whatever.
2. Do a budget for the next financial year based on status quo, or get help from your accountant, bank manager or advisors to do this budget.
3. 2006/07 provisional tax will have been paid by now, but can be refunded quickly if you file tax returns showing a reduced income, make an adverse event deposit and/or make a retrospective re-estimate.
4. Talk to your accountant about making an Adverse Event Income Equalisation Deposit. This allows you to sweep taxable income from selling extra stock (or not replacing traded stock) into the next financial year which is the year in which you would expect to make the loss after a drought. (The 30-day ‘after balance date’ deadline for deposits to the scheme has now been extended to 31 March 2008.)
5. When you get your first 07/08 tax demand, have a good think about what your profit will look like as you can estimate at any point in the year, and re-estimate as things improve.
6. It’s important to have a good grasp of what your true profits are, tax is a secondary issue.
7. Many of you with dependent children will become eligible for family assistance, and can apply for fortnightly payments if you produce an estimate of the “family income” for 07/08.