Director’s Opinion – Nick Walls
There is no doubt that 2023 keeps bringing challenges to households and the economy. Inflation continues to roll on and to get that under control the Reserve Bank’s lever on interest rates is being pulled harder and harder. In reviewing forecast positions for some of our dairy and arable farming clients recently it is clear that profits for the 2023 year are substantially impacted by supplier cost increases and interest rate hikes.
Cash positions that were budgeted early in the 2022/23 season are not flowing through as they were originally expected to and the cash is disappearing quicker than people thought. In most cases, interest costs have doubled and farm working expenses are at least 10% higher than 2021/22. If you haven’t done so already, we recommend completing a reforecast out to the end of your season to understand your expected cash position at balance date and rolling this into a high level cashflow budget for the next season.
Completing a reforecast now gives you the opportunity to discuss the expected position with your team at Leech & Partners who can provide advice on adjusting expected tax payments that originally would have been budgeted higher earlier in the season. As we head towards the third and final provisional tax payments in June/July for the 2022/23 season, this is particularly important.
It is also important to reassess what capital spend will need to be done over the next 12-18 months. If that spend can be deferred in any way, then that should be considered seriously. Plant and equipment costs have skyrocketed over the last 12 months. We all know the cost of fertiliser has also gone up exponentially over the last two years. Is there a different way you can maintain fertility? Do you need someone independent from the fertiliser companies considering the best application to make?
Further to this, many clients will have provided substantial amounts of principal back to their banks over the last few years. Businesses will not have the same capacity to do this over the next year or two. It might be time to discuss moving to an interest only phase on term debt. If you’ve undertaken major capital spend out of cashflow, the bank may be willing to discuss putting that onto term debt to ease your overdraft peaks. Having this conversation with your bank earlier rather than later shows a proactive approach to managing your debt with them.
It is likely that the impact of inflation will continue to hurt our economy for some time and operating costs seldom drop. Therefore, the best thing you can do is proactively manage your cashflow as best you can, focusing on areas you can control. If you need assistance with any of this our team at Leech & Partners are always happy to help.
