Farm Planning And The Accountant

Press, Volume CVI, Issue 31101, 2 July 1966, Page 10

Farm Planning And The Accountant

From two sources this week came calls for farmers to know more about their financial affairs, and where they were going financially. v Addressing Methven farmers at a winter farm course on Wednesday, Mr J. Newman, of Nelson, well known for his activities in development work, said that at present the farm accountant provide’, his client with a profit and loss account —usually long after the end of the financial year —designed principally for tax purposes. This was quite inadequate. Earlier in the week, a Hawarden-Waikari farmer (Mr B. H. Palmer) told the Institute of Agricultural Science he thought this return for income tax purposes only, was quite inadequate. His audience agreed with him. Farm accountants, he believed, would have to play a greater role as farm advisers. Farmers needed to know more about their position, and should be prepared to pay for it. A member of the audience, with a wide knowledge of the Waikato, deplored methods of farm accounting in the past. For one firm of Auckland accountants, he said, the preparation of farm

accounts was a job for the office boy. But he was glad to see that at the recent seminar for farm accountants at Massey University, this firm was represented. Mr Newman told the winter farm course at Methven that in making his proposals, he realised he was treading on dangerous ground, as he could so easily be misunderstood, because it involved more detailed planning and financial budgeting and controls than farmers were used to. “You have a built-in objection to this sore of thing. You envisage a greater say in your farm affairs by stock and station firms, by banks and the like, and you want to preserve your independence,” he said. “The sort of programme control I envisage does, I believe, safeguard the financial independence you strive for when undertaking development projects.” Referring to the preparation of accounts principally for income tax purposes, Mr Newman said these were quite inadequate to give a true picture of the farmers’ cash position, now, or in the future. “I think farmers can make greater use of their accountants as financial advisers, as providers of cash-flow statements, and not simply as filers of your tax returns,” he said. “The most valuable information a business enterprise gets from its accountants is a cash-flow statement for the year ahead, or several years ahead. “Where has the money gone? What is available for the future? What can the farmer afford to spend on replacements (depreciation), increased stock (capital), new buildings (capital), new plant, new businesses? Does he do it from current Income and/or from various forms of loan finance? “Except as a guide for the future, he does not rely on a profit and loss account. That is history, anyway. It has little value for the future.” If this sort of information was available, the farmer could plan his future with greater confidence, Mr Newman said. It would take out some of the financial guesswork which at present is built into the farm finance structure. It would enable the farmer to undertake, with greater confidence, the various schemes of development being urged upon him. “You will know better than I how expenses seem to snowball after the first two or three years’ development,” Mr Newman said. “It is at that critical stage when the

developer too often has to slow down his rate of growth, unless he has a planned financial programme. The consequent loss of investment through inability to stock to the new capacity is Inevitable in these circumstances. “Every business I have been associated with makes use of this sort of information. It adopts budgets and internal controls automatically as a prerequisite for business investment and development, and farming is the biggest business in the country. You are entitled to have this sort of cash-flow statement, a plan for your financial future, before you embark on any development programme. The additional accountancy fees are well worth while.” Mr Newman said this would certainly take the guesswork out of ascertaining the real earning capacity of particular classes of land. If the sort of information he suggested was compiled by districts, then prospective buyers would probably pay some heed to likely returns on their prospective investment, and thereby dampen down some of the inflationary trends in farming today. “How much easier it would be for purchaser and seller alike if there were records of average district production and income available. Are financial records of past results available to prospective purchasers? They are with businesses, or there is no deal. “One can take this cash flow knowledge a stage further to give the farmer a comparison of his own output, on a per unit or per acre basis, with the district average, thereby providing him with what should be the darning capacity of his land based on knowledge of similar district averages. “It does not Involve greater control by stock and station firms and by financial institutions. In a measure it takes control from them and puts it where it really belongs—with your own financial adviser, your own accountant and yourself. “You may say that this sort of information is now being used by farm advisory services, improvement clubs, and by groups of farmers employing accountants. I realise this but I have a suspicion that the knowledge is not being used to the fullest possible extent, and that a very small proportion of farmers have undertaken any such plan. Why not accelerate the use of professional services? I commend it to you. “I think you will be surprised at the advantages such a financial plan of development can have with financial houses—the confidence these people will have in your development proposals if supported by sufficient evidence of the sort I suggest you compile.”