Your debt needs to be able to be serviced at higher interest rates than you presently have.
While you may not be able to control the risk you need to consider your response to protect your business from it’s implications. Identify your own risks factors – and rate them according to potential impacts on your business.
If my farm / property is susceptible to flood then the risk is more significant than a higher well drained property. Risks need to be addressed accordingly to each individual business.
COVID 19 has demonstrated a risk that we believed was extremely remote – but it has happened. It also has demonstrated that the government has limited resources and for the next few years, they may be stretched.
Therefore we can’t completely rely on government support programs as fall back for our business. We need to be in control of our business.
What can you do to build business capacity to ride through the tough times?
There are a number of things available. This is not a complete list however I offer a few examples.
Farm Management Deposits are an excellent tool to provision for risks such as weather events or short term market failure. FMDs are effectively your own insurance policy for the bad times. They can give you immediate access to funds to recover your production whilst government schemes can take time to be applied for and processed. Being back in business early gives you a market advantage.
Insurances – Dreaded insurance policies – however they can be a very important part of your business. Unfortunately we all know of people who have had serious accidents or fatalities. Farming has a high rate of workplace accidents.
Assess your risks and what cover you think you need – then talk to your professional advisors :ie accountants, solicitors, insurance brokers or financial advisors about what you need and to what level. Diversity of Investment Assets – Invest in diverse assets such as an industrial shed in other larger communities - spread your risk.
Financial Risk – Businesses will have a varying level of debt through the life cycle of the business. A new or developing business will generally have a higher level of gearing than a mature business that has had time to pay down debt and build the capacity of the business.
The level of debt and servicing will be affected by interest rate fluctuations as economies rise and fall. Managing frugally and spending on items that give you a return can help you build wealth.
You know your farm – you know your business.
Understanding and assessing the risks particular to your business are crucial to a good management plan. Once you understand them then you can put in a level of risk management that you feel is appropriate for your business.
