Take the long view like a farmer to harvest more from your money
The rhythms of agriculture can teach us all about perseverance and strategic planning. By
Farming, much like money management, is a long game that requires patience, perseverance and strategic planning across all aspects of the operation. Taking a short-sighted approach to financial planning can be as devastating to a farmer’s livelihood as a flood or drought.
Dawie Maree, head of agriculture information at FNB Commercial, outlined the following money management tips, based on a farmer’s business strategy:
Rigorous budgeting. Developing detailed, data-driven budgets using the SMART (specific, measurable, attainable, relevant and time-bound) approach is crucial for effective farm management and securing financing. “Budgets need to be very detailed, and should account for production costs, capital expenditures and cash flow projections.”
Long-term strategic planning. Having a written long-term financial strategy that aligns with breeding or production plans is essential. This strategy must be regularly reviewed and revised to adapt to changing conditions.
Nirdev Desai, head of sales at PSG Wealth, points out that many things in life are happening faster than ever – including news flow, technological change and heightened market volatility. Investors’ holding periods in stocks are also part of this acceleration – having decreased from five years in the 1970s to less than 10 months today. “Despite these statistics, the only certain way of achieving expected returns from growth assets reliably hasn’t changed since then, and 10 years is still the recommended time horizon,” he says.
The United Nations department of economic and social affairs reports that longevity has improved over the past century.
“Global life expectancy at birth reached 72.8 years in 2019, an improvement of almost 9 years since 1990. According to current projections, further improvements in survival are expected to result in an average length of life globally of about 77.2 years in 2050. By 2050 there will be more than twice as many persons aged 65 or older as children under five globally,” the report says. Living longer means your retirement savings need to last longer, but the positive way to look at it is that you have a longer time horizon to grow your money.
Meticulous record-keeping. Though few farmers would readily admit to being excellent at paperwork, running the farm as a business requires robust systems to track all financial records, no matter how small. This will help you to reconcile accounts and
Recognising the cyclical nature of farming avoids the temptation to chase
short-sighted quick fixes, when patience and a long-term mindset are vital in view of production
and breeding cycles
make informed decisions.
Cyclical mindset. Recognising the cyclical nature of farming avoids the temptation to chase short-sighted quick fixes, when patience and a long-term mindset are vital in view of production and breeding cycles. Remember that although there are ups and downs in investment cycles, you shouldn’t panic and sell when prices are low, since this locks in losses.
Estate planning. A good estate plan is much more than just drafting a will. It requires a detailed look at everything you own, and careful consideration of what you want to happen to it when you die.
Succession planning. “Spend time on succession planning to ensure you are planting for your children’s future,” says Maree. Part of good succession planning is ensuring that your children are financially savvy enough to manage the inheritance you leave them as well as their own money. Professional guidance. “Partnering with a specialised agricultural finance expert provides valuable guidance, which enables farmers to make well-informed decisions that help to ensure their financial sustainability, while still being able to focus on their core operations,” Maree says.
He points out that building a strong relationship with your bank at the outset, rather than just when a crisis hits, is key because it enables your bank to fully understand your operations and be more willing to provide the financial support you need during difficult times.