ULTIMATE IN PLANNING FARM FINANCES

Press, Volume CIX, Issue 32038, 12 July 1969, Page 9

ULTIMATE IN PLANNING FARM FINANCES

The ultimate step in farm financial planning was systematic checking and control throughout the financial year, Professor J. D. Stewart, professor of farm management at Lincoln College, said at a farm forum held this week at Temuka.

This would involve regular comparison of cumulative income and expenditure against the budget. Since calendar months were the customary time units of financial returns, this checking should ideally be done monthly, There were some farmers who worked closely to this system, where the budget was laid out on a monthly basis. They found that it gave them very firm control over their finances, both farm and household, and they were able to make clear-headed decisions throughout the year in response to the unfolding financial picture. This job might seem to be tedious and unattractive but for many it would ' be time productively spent

Assistance in preparing budgets and the estimate of cash flow throughout the year could be obtained from farm advisers and accountants, and stock firm security supervisors were increasingly doing this sort of exercise for clients with high indebtedness.

■ The most important advance in this work would, however, undoubtedly result from the increasing availability and power of electronic computers.

For some time, he said, they had been exploring the possibility of using a com-puter-based system of monthly accounting control on farms and this was likely to be available at the earliest about 1970-71 at a cost of something like $3O a farmer—it was

difficult to work out this figure at this stage.

The objective of such a system was to provide cooperating farmers with an up-to-date analysis month by month, with budget comparison, an interim balance if required for taxation i planning, and an immediate analysis of fianncial performance at the end of the twelfth month, on which to base the succeeding year’s programme and budget. The farmer, for his part, would have to record on specially coded sheets his monthly transactions. The computer did the rest, and while it did not do anything that could not be done manually, it did it swiftly, accurately and systematically. Many might think that they were up in their ivory towers in imagining that computerised analysis of this kind could have widespread application in the farming industry. This might be so. He was not making any extravagant predictions, said Professor Stewart. “All I can say is that it represents, in my view, the best prospect for getting financial organisation of farms on to a business-like basis. And while financial planning is by no means the only component of successful farm management, it is an extremely important component—indeed on many farms it is crucial.” Earlier Professor Stewart had noted that the financial structure of New Zealand farms in general was basically sound, although there was a segment of the industry where debt commitments

kept farmers in a financial straightjacket. Clearly the most effective way to get on top of high indebtedness on a Stock unit basis was to exercise careful financial control and to increase stock numbers at the fastest possible rate, he said. A pertinent way of looking at farm indebtedness was to relate costs of servicing the debt (principle repayments, plus interest, plus rent where applicable) to the productive units on the farm, such as sheep or dairy cows. Analysis of data of the Economic Service of the Meat and Wool Boards showed, for example, that these charges amounted to about 25e a ewe equivalent in South Island high country, 50c on North Island hill country and 60c on fattening country in both islands.

Any farm adviser or farm accountant, who looked critically at the debt situation on sheep farms, would appreciate that these average figures were low.

For example, in his experience, said Professor Stewart, a reasonably productive ewe producing 101 b of wool and giving a 100 per cent lambing could carry a debt of $1 and still leave scope for development, assuming a sizeable flock of ewes. When the figure climbed towards $1.50 financial flexibility declined markedly, and when the figure exceeded $1.50 and got up towards $2, as occasionally occurred, there were real problems.

To a questioner, Professor Stewart said the $1 figure was related to the position after the recession in wool values with wool being at about 25c a pound and lambs at $4.50 to $5. Professor Stewart said he had an instance of the debt servicing charge being equivalent to $2.60 a ewe but by a fast rate of development and increasing stock numbers it had been possible to get the debt servicing down te $1.20 in four years. It was possible to get out of a debt servicing problem by borrowing more and putting on more sheep.