You run a niche, high debt, high-risk farm business. So it’s best to buy software designed specifically for your business.
It is easy to assume that all financial software is the same. This assumption is valid to a point, as all financial management software contains the same core ingredients of accounting; GST compliance, payroll and accounting reports. However, not all financial management software is the same because not all types of business are the same. One size does NOT fit all. This is important because using the wrong financial software for your farm business will expose you to unnecessary risk, add extra unforeseen costs to your financial management, as we spoke with Emma Cullen about, and result in you missing out on profit.
Your farm is not a typical business
Farm businesses only make up 3.6% of companies in Australia, so very few will create software dedicated to your farm business. There is also a significant financial management difference between the average small business, e.g. a cafe in the city, and the average farm business.
According to the ABS, only 7% of businesses turn over more than $2,000,000 and 59% turn over less than $200,000. The average small business loan is only $13,000.
Yet the average farm debt is $617,000 with 40% borrowing more than $1,000,000!
Understanding these differences is important because cheap generic software targets the small business market and writes software for their needs. And the needs of the target inner-city cafes are very different to your farm business.
Your farm cash flow management is 12-24 months, not 90-days
Like our example cafe, most small businesses run a 90-day cash flow cycle. They manage cash flow by asking suppliers, e.g. milk and coffee suppliers, to extend payment terms. The cafe then tries to sell quickly to have the cash to pay their bills on time. If they can’t pay their bills on time, they can borrow money.
In contrast, your farm business runs on 12 to 24-month cash flow cycles. These large cash flow cycles are financed with significant working capital for input costs and require large amounts of income to pay down debt over the period.
Your farm deals with large value transactions that require detail
Typical small businesses have large volumes of small daily/weekly transactions, invoicing, plus high stock management. This is why generic accounting software focuses so heavily on transaction efficiency over transaction detail, and you need to buy add on software to capture any extra detail.
Your farm business is the exact opposite. Your volume of transactions is smaller, but they are of higher value with additional management requirements like quantities. You have a low need for invoicing and different stock management requirements. So it would help if you had software that focuses on transaction detail. Because your business cycles are so long, you need to record management information against your transactions so you can analyse and review your business to look for performance improvement.
Your farm business risk is significantly higher
Your business faces the weekly risk of weather, global commodity prices, extensive debt management & production risk. Small changes in your external business environment can cost you more than $100,000. This requires an ability to have clever and adaptable financial forecasting that can adapt quickly to changes to minimise your financial risk yet maximise your profit.
Small business software will not have these features because their target clients, like a cafe, are exposed to more negligible financial risks, and most of their months are predictable. These urban businesses face a smaller risk of not being paid on time by clients, low sales volumes over months due to economic downturns or marketing mistakes etc. Changes in their external business environment are slow and don’t require the agility of a farm business. Plus, they can limit their financial risk to $1,000’s. This is why small business software does not focus on cash flow forecasting, budgeting or scenario planning because their target client doesn’t need it, but you do.
Successful farmers use specialised farm financial software
As a farm manager, you need to think ahead. You run a highly specialised high-risk business with unique requirements. Specialised farm financial software products will cost more than any generic small business software. The cost of getting it wrong in the farm business is significantly higher than the few $100/year you might save by using generic small business software recommended by your accountant. The largest and most successful farmers in Australia understand their unique business and are masters of farm financial management. So ensure you use specialised farm financial management software to have the best chance of minimising your financial risk and maximising your business profit.
Make the next step in your business, experience the power of Agrimaster; a specialised farm financial software by signing up for a 30-day trial.