Structuring Your Business
Paul Fisher
Boyce Chartered Accountants
Paul compared the farm business of a selection of his cotton clients to assess how they managed during drought years. In particular he examined the overall profit and loss of these enterprises and the lessons learnt.
Can you tell us a bit about yourself?
I’ve been with Boyce Chartered Accountants for 15 years, over the last ten years as agricultural partner primarily working with agriculture and ancillary services to agriculture.
How have your cotton clients fared during the drought?
It’s been tough. The success that Moree had until the year 2000 meant that cotton was a particularly profitable crop to grow and that’s meant that since the drought and lack of water a lot of growers have been struggling to cope with the adjustment.
Of those who have adjusted better, what do you believe they did well in terms of their farming enterprise?
In terms of profit alone the ones who have done well have had the least overheads. Because we haven’t had the rain it’s simply those growers with the least overheads who produced the most profit or at least the smallest loss.
What are some of the lessons learnt during the past few years?
I’m not an advocate for diversification but I’m not against it either. However, if you don’t have diversification you can expect a bumpy ride. And that’s where we are at in terms of the lack of water. A grower who is simply an irrigator is in for a bumpy ride.
What are some of the financial pitfalls that growers face in tough drought years?
Debt has become such an accepted part of society and definitely an accepted part of the Australian irrigation industry that it has been overdone. That effectively makes a tough time worse because it effectively adds to your overheads through interest repayments as well as adding to your stress levels.
How can growers best respond to these pitfalls?
It comes down to personal choice – ask yourself if you can cope with that stress and debt. If you can then we know that at some point in time, hopefully soon, the drought will be over and you can get back into it again. Is it a time to panic and sell out? I don’t think so. We’ve seen asset prices plateau but not as much as stripping away value. If you can cope with the stress then stick it out.
What’s the single most important message growers can take away from your presentation?
That figures are essential. I think farmers don’t particularly enjoy doing budgets but budgets are essential. You need to know what your fixed costs are – we then need to say what resources we can through at that fixed cost – we’ve got our water, our land, our soil moisture so ask yourself what crop you can grow that will statistically return the most so you can control those fixed costs. I think if there’s one lesson that farmers can take away that would be an essential part of the message.
Is there anything else you’d like to add?
It’s not all doom and gloom. We’ve had such a fantastic rise in asset prices as well as being a hugely profitable industry until 2000. What we are going through now is actually going to teach us how to make profit in the future when we get more stable water returns.
