Info & communication – keys to good financial management
Lately, effective financial management is unnegotiable for an agricultural producer expecting to sustain long-term financial growth at a given profitability. Two especially important components of any successful financial management process is a) correct, relevant, and accurate information, and b) continuous communication of information between all relevant parties. The most important parties involved in this process are the producer, their accountant, banker, broker, and suppliers.
It is necessary that the producer has a meeting with their accountant at the beginning of their financial year to set up a cash flow budget for said financial year. At this stage relevant information and good communication are essential, during which the producer should provide the accountant with their revenue estimates for the year, as well as their estimated expenses and improvements. It will help a great deal if the producer is able obtain quotes from their suppliers beforehand, so as to budget as accurately as possible. At this stage it will be good to verify all payments for hire purchases and term-loans, as well as overdraft facility limits, with your banker.
After having done the cash flow budget, the accountant and producer should be able to detect any cash shortage for which funding should be acquired, or any possible tax liability, which should be communicated with the banker in a timely fashion so that the producer can decide on possible expansions, which in turn will be communicated with suppliers by requesting quotations and placing orders for these additional expansions in a timely fashion.
During the year, the accountant should regularly send the cash flow budget, updated with the actual figures, to the producer who will keep track of any deviations and who, in turn, can communicate any material events which should be included in the budget, such as crop damage or other expenses for which there had not been budgeted. The accountant should also keep the producer informed of any tax legislation changes which may have a bearing on the producer.
Approximately two months before the producer’s financial year end, the accountant and producer should meet again to do a provisional tax calculation. Ten months’ actual figures will have been available by such time, with which a very accurate estimate of tax liability can be made.
The third important meeting of the year entails discussing the financial statements. This is a good time for the accountant to provide the producer with a financial overview of their five most recent financial years, and also to compare business figures. It is essential that the financial statements be made available to the banker so that they can conduct an annual facility review.
Furthermore, communication between the producer and their broker is essential in the event of occurrences which could influence their coverage, so that the necessary adjustments can be made to their insurance policies. In the event of claims, it is especially important that the producer contacts their broker as soon as possible, and continuously provides any information requested.
Good communication and reliable information are also of great interest between the producer and their suppliers. Suppliers should quote as accurately as possible and inform the producer of any price increases or special offers which could influence the producer’s financial position, in a timely manner. In turn the producer should place all their orders in a timely fashion, and communicate with the supplier in the event that they should cancel an order or require an extension on payments.
Arnand Stofberg – B Agric Admin (US); B Compt (UNISA)