Finance and insurance
It is often difficult after an event like a flood to take time to focus on the financial planning for your business. Taking time to formulate a plan will, in the long run, aid faster business recovery.
The following are the first steps you can take in formulating your plan.
Step 1: Ask for help
Rural financial counselling is a free service to farmers and small rural businesses.
Don’t go it alone – give them a call.
Step 2: Where are you now?
Assess your current business position by estimating the value of all assets and liabilities.
- Land: Write down each parcel of land, who owns it and what the current market value is likely to be.
- Stock: List each class of stock and their likely current market value.
- Produce on hand: List all produce currently on hand including hay, grain and unsold wool at their likely value.
- Plant and machinery: List all plant and machinery you own and its current market value (hint: what would you pay for it at a clearing sale?).
- Vehicles: List each vehicle and its likely current market value.
- List the value of your bank accounts, investments and shares (accounts that are in credit).
- List the current value of any superannuation funds and the surrender value of life insurance.
- List a description and value of other real estate and valuable possessions (for example jewellery or antique furniture).
Total value of all assets = …………………………………………….
- Current balance of your overdraft (if in debit).
- Term loans (and what they are secured against).
- Hire purchases or machinery loans.
- Other loans (for example family loans).
- Credit cards (if in debit).
- Unsecured creditors (all outstanding accounts).
Total value of all liabilities = ………………………………………..
Net value of your assets = assets LESS liabilities.
It can be useful to do this exercise on 30 June each year to see how your position is changing over time.
Step 3: Where are you likely to be in the next 12 months?
Assess your likely future financial position and write down an annual cash flow budget for the next 12 months.
List the likely sources of income (if no changes are made) from each of your enterprises over the next 12 months. For example, categories may include wool, lambs, cull sheep, cattle, grain (wheat, barley, oats and canola) and diesel rebate.
List any off-farm income including dividends and interest payments, contracting income, other household salaries.
Split into enterprise, and overhead costs. Enterprise costs include costs associated with each enterprise, such as animal health, shearing, contract services, fodder and freight.
Overhead costs include costs that are always there regardless of the type of enterprise you are running, such as rates, insurance, accountant, administration, fuel, electricity and telephone.
Subtract the expenses from the income. This is your farm operating profit or loss. From this you then deduct (or add on) the interest and principal repayments from your profit (or loss). Then list and add on any other off farm income, such as wages, Centrelink and non-farm investment income.
Estimate your personal expenditure for the year and your personal tax liability and deduct from the figure. This will then give you your net cash flow for the year. At this point a more detailed month by month cash flow budget could be useful to track the balance of your operating account to make sure you will not exceed the overdraft limit.
If your cash flow is a positive amount you have the discretion to decide to spend or save the excess. If it is a negative amount you must answer the questions ‘will you need to borrow more money (is your overdraft adequate?) or will you need to make other changes to your farming or personal circumstances?’
Step 4: Where do you want to be?
These steps give you the basic information to start working out a plan for your business recovery. This will include determining your personal and farming priorities and goals and looking at options to meet your needs.
Rural financial counsellors can assist farmers to acquire the necessary basic financial information and then work out a plan. This may include seeking further assistance from other professionals including consultants, agronomists, accountants and solicitors.
In any plan, it is also never too early to consider a succession plan for your farm.
Notify your insurer or your insurance broker as soon as you can after an incident. It’s important your insurer is made aware of your decisions regarding the destruction of injured livestock, any major repairs or any major clean-up of assets.
It is recommended you take photographs of damaged assets and livestock to support any insurance claims.
It is important, but often difficult under stress, to remember all of your lost assets (see How to prepare for flood). However, most insurance companies understand this and are flexible enough to allow you to reopen and amend your claim case.
Make the claim as best you can and, as clearly as you can. You may be feeling shock and grief at this time, which may make it difficult to understand information the insurer has sent you. Ask family, friends, support agencies and insurance representatives for help to lodge your insurance claim as soon as you can.
Your insurer may ask for other information. If they do not accept that you cannot provide this information (that is, you are asked for documents which are lost or destroyed), you should seek urgent legal advice.
The insurer may send out an assessor or an adjuster to examine your claim. The assessor may interview you. If you feel you are being unfairly treated by the assessor you should get advice or help. For example, you may want to ask for an interpreter or a friend to sit in on any interviews. If the assessor wants you to drop your claim you should get legal advice urgently.
Do not sign any documents until you understand what they mean. You should get legal advice about documents your insurer asks you to sign, such as an insurance release form.
If you receive a payout but are unable to spend it on recovery work before the end of the financial year, it will be treated as income and taxed accordingly. Therefore, it is advisable to talk to your accountant about Farm Management Deposits (FMDs) or other solutions.