Rural Affairs
Issue No. 8 - December/ 2002/january
Managing Drought
Farm cash flow management critical for 2003
As harvest starts, farmers are now facing the reality of the drought. In most areas they will produce tonnage well below their average. In the worst areas producers will have no income for this season. In some of the more reliable areas, the higher prices currently being offered will assist in compensating for the reduced tonnage. Ironically, it is in these areas that farmers will again have to be aware of taxation issues.
The economic impact of the drought has yet to be completely felt by the producers, the rural community and the wider community. As farmers stop spending, the negative economic impact will affect the whole community.
An important time for farmers will be immediately after harvest. With tonnage and price now known, cash flow planning for the 2003 is critical.
Key business questions need to be asked and answered. Communication strategies with stakeholders and financiers need to be developed and acted on and new business risks identified and management strategies developed.
It is very important that the farm business manager uses specialist advice to their advantage. Communication between various farm advisers is vital.
Ideally, the farmer and their grain marketing consultant need to communicate with their accountant before selling their grain. This will determine the impact of various selling tactics on taxation and—more importantly—cash flow and profit.
Marketing pools can be used to defer taxation liabilities, however these products can have an adverse impact on cash flow. Selling grain for cash will greatly assist cash flow, but may impact on taxation. Farm business managers have other products, such as farm management deposits, to help manage taxation liabilities.
The overriding planning criterion is to ensure we have enough cash flow to cover the next 12 months. This includes seeding and in crop costs for the 2003 production year.
Through prudent cash flow budgeting the well-ma...
