Dollars & Dirt

Dollars and Dirt

By Brian Watts

‘Forty bags to the acre has been heard more than once in the last week. Wimmera farmers are enjoying well above average yields for certain grain types. My bet is that 2020-21  will go close to being a one-in-ten year, with farm productivity and profits exceeding the most recent five year moving averages.

Our most recently completed report  on  Wimmera Farm Profit and Performance, the five-year rolling average,  had the median farm – the farm  in  the  middle from lowest to best – spending 60  percent of farm income  on operating costs.  The  top  20  percent profitable farms in the survey only spent 41 percent.

At  this   stage we  can  predict those key performance indicators, KPIs, will be shattered. Farm productivity can be measured by comparing the result, or output, against an input. The productivity of the farmland used,  the  amount of labour,  the amount of income produced from the dollars invested  in farm plant and  farm  assets  being  managed are four key measures.  We expect they will be shattered as well.

In  our  most recent Wimmera farm report, the median farm:
• Earned $343,600 in farm income for each farm worker involved. *Top 20 percent most profitable farms eamed,$592,900.
• Had invested· $122,000, or 122 percent, in farm plant for every $100,000 of farm income earned. *Most profitable farms, $800,000 or 80 percent, with lower meaning better.
• Created a 4.57 percent rate of return in ‘cash profit’ on the value of farmland under management. *Most profitable – land owned; leased or share farmed, 10.5 percent.

If this farm year turns out to be a ‘bottler’, here are some suggestions.
Build resilience into your farming business by taking several steps. The government has offered incredible tax incentives to invest in plant. Wise decisions need to follow.
Know your financial position.
Know your likely ‘taxable’ – as opposed to your ‘real’ – profit to take advantage of this ‘one-in- ten’ year.
Apart from sound grain-marketing decisions that are dependent on storage-capacity and knowledge, many will engage with grain marketing consultants.

Tax planning with your tax ac­countant early to ensure tax-ef­fective decisions are made is en­couraged. However, only invest in plant that -is commercially sen­sible.
We encourage · Wimmera farm­ers to have various tax scenarios calculated by creating ‘what if’ tax outcomes for. major farm out­lays, such as plant, FMDs and superannuation.

Financial decisions such as leas­ing, chattel or .cash need to be weighed up to avoid a mistake.
Perhaps it is time to alter your farm-business structure for both tax and asset protection reasons.
A basic 13–column cash flow budget can be extremely helpful for better decision-making that results in reduced tax bills.

None of us ‘do not know what we do not know’; we all make mistakes, best practice is to minimise such.

Watts Price Accountants of Hor­sham started reporting on Wim­mera farm performance in 1991.
Work on the 30th report – for the 2020 financial year – has already started. Any Wimmera farm is welcome to be involved and re­ceive a comprehensive report on 17 KPIs for 2020 and the previous five-year rolling average.

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