Agribusiness needs to budget for volatility
While volatility in business is to be expected, many of New Zealand’s primary producers have experienced a bumpy ride in recent years. Increased volatility driven by to swings in international commodity prices and the value of the NZ dollar is now the new normal according to professional services firm Crowe Horwath. In this context, Crowe Horwath says a strong case is made for agribusinesses in general to invest time and effort into careful budgeting and cash flow planning to weather unexpected difficult times. “The dairy sector witnessed the heady payout levels of 2013-14 rapidly give way to the current trough and associated uncertainty around a recovery timeframe. This has created real pressure for many,” confirms Larry Mitchell Agribusiness Advisor at Crowe Horwath. “However, while this is a case in point, it illustrates that as a globally traded commodity any agribusiness faces volatility risks where markets can and do change regularly.” That, Mitchell notes, makes a strong case for optimising cash flow through careful planning and preparation. “Getting a clear handle on budgets and cash flows is good business practice that should be undertaken in the good times as well as bad. In fact, the point of planning is to give your business the resilience to ride the lows – even though you may have little-to-no idea when they might come,” Mitchell adds. Take stock of spending habits Putting together cash flow and budgets starts with taking the time to honestly evaluate spending patterns for the business. “Once budgets are established, stick to them. Avoid the temptation to spend a little bit extra here and there; the extras quickly add up and soon you could be looking at a significant amount of unplanned expenditure over the year,” Mitchell points out. The temptation is likely to be stronger in good times; don’t […]