Setting your business up for the long term

With farmers enjoying a strong run of payouts over the past few years, cashflow is still looking good on many farms – and that makes it an ideal time to take a closer look at the numbers.

“Historically, when income rises, so does the tendency to spend – often on things that don’t improve efficiency or generate a return,” Sarah says.

“Every spending decision should align with a clear business strategy.”

Match your strategy to your stage

Different life stages call for different strategies. A farmer with low debt and a focus on succession planning, for example, might prioritise investing in infrastructure that will benefit the next generation. On the other hand, someone earlier in their journey, perhaps having recently bought a farm or herd, will be focused on managing higher debt levels.

Sarah says strong cashflow years can make borrowing more accessible, as banks become more active in the market.

“You might have the capacity to take on new debt, but that also pushes up your loan-to-value ratio. When payout drops, the business can quickly come under pressure,” she says.

“That’s why it’s important to think beyond the current season and take a long-term view.”

Tools such as the annual cash budget or 10-year equity forecast tool can help farmers see how today’s decisions affect their long-term position – and model what happens if milk price or interest rates change.

Stress test every decision

Before committing to new spending, Sarah recommends farmers stress test all major decisions. Ask: What happens to this investment if the payout falls by two or three dollars? Could we still service the debt and maintain positive cashflow?

On her own family’s farm, Sarah and her husband Jake are upgrading staff housing – a long-term investment in people and infrastructure.

“We’re loyal to certain companies, but it pays to ask around. We found a $15,000 difference between quotes for the same job. Having that information helps us budget capital expenditure properly and see the real impact on the bottom line.”

Even seemingly small differences can add up to significant sums over time.

“A $15,000 saving today compounded over 30 years is equivalent to more than $260,000.”

Building long-term resilience

Paul says, “It’s rare to have two consecutive years of strong payouts. Using the good years to reduce debt improves resilience and builds options for the future.

For younger families or those who’ve recently bought cows or land, debt reduction is usually the best investment.

“Maintaining a healthy margin between income and expenses is important to ensure room to move when payout volatility hits. Even in a strong year, rising costs can be easy to miss, so staying on top of expenses and efficiency helps protect — and grow — your profitability.”

The Mark and Measure course (dairynz.co.nz/mark-and-measure) is one way to take a structured look at your business.

The three-day programme, run annually, helps farmers analyse their performance, identify opportunities, and create a strategic plan tailored to their goals.

Keep balance in the mix

While financial discipline is vital, Sarah also says that life is about more than spreadsheets and debt repayment.

“Sometimes the best investment is in experiences or people – taking a family holiday, upgrading staff facilities, or paying for extra relief labour so you can get more time with the kids.”

Paul says balance matters.

“You have to enjoy the journey along the way.”

Good cashflow offers a rare opportunity to strengthen both your balance sheet and your wellbeing. The key, Sarah says, is making those choices deliberately.

“That new boat or trip away doesn’t have to wait forever – just make sure it fits your overall business goals and your family’s future.”

Check out dairynz.co.nz/business for a range of information and tools to support your business.