End of financial year planning is not just about meeting tax and accounting compliance requirements. Now is the time to examine your business in terms of operational and financial targets in light of the seasonal outlook and ongoing financial requirements.
Cash flow forecasting is a critical management tool for every agribusiness coping with lumpy income streams, increasing expenses and debt servicing commitments. However, a sound financial plan must be based on a workable operational plan. All operational assumptions such as yields, weight gains, timing of sales and input prices must not only be verified by past performance but also forecast based on natural resources currently available, upcoming seasonal outlooks and commodity trends.
Regional and global weather patterns affect all agricultural operations and forecasts must be considered by operators in determining operational and financial plans for the upcoming financial year and beyond. If a significant impact is likely, it is critical that operators talk to their bank now, to ensure that banking covenants are met and ongoing support is provided over the period. Support can generally be gained by having a sound and workable operational and financial plan.
Specialist advice may be required. Accountants are great from a tax and compliance perspective, but may not have the operational expertise to critically analyse and verify the assumptions underpinning the Business Plan, or to see the bigger strategic objective of the operation.
Some operators will be required to meet certain targets set by their banks over the upcoming planning period, such as debt reduction. It can be difficult for some operators to see how they can get from Point A to Point B which may require a combination of strategic decisions around production planning, business optimisation, capital expenditure and asset realisation. It is in these areas a specialist advisor such as AMC can provide valuable assistance.
Under AMC’s Business Management Cycle, there are four key planning components which are developed under a basis of continual review and improvement.
- Five year Business Plan
- Five year Capital Expenditure program and Plant and Equipment Schedule
- Annual Operating Plan detailing the plan for farm operations and assumptions
- Annual Operating Budget and Cash Flow Forecast (13 week rolling) to fund the Annual Operating Plan and Capital Expenditure Plan
All plans are aligned with the Five Year Business Plan to drive the strategic direction of the business backed by annual operating flexibility with a rolling updated cash flow forecast. The business can then be benchmarked to a range of financial and operational performance indicators.
Armed with sound operational and financial planning, primary producers are strongly advised to maintain close working relationships with their banks, including ongoing communication of actual performance to targets set in the planning process. This will ensure that banks and producers remain ‘on-side’ and working in partnership through both difficult and prosperous times.
AMC’s 6 steps to plan for success:
- Review all production assumptions in light of natural resources on hand, seasonal outlook and commodity trends
- Prepare cash flow forecasts in line with verified assumptions and Operating Plan
- Review all lending arrangements to ensure adequacy and that all covenants will be met throughout the Operating Plan
- Ensure long-term business planning is focussed and relevant
- Seek specialist operational assistance to explore a range of strategic options if required
- Maintain a close communication with your bank including ongoing reporting