Pete Debus, 24 August 2021
I had to opportunity to read the Australian Financial Review magazine on the 21 August 2021 and noticed a Rolex ad, accompanied by photos of sailing ships and the following quote:
“It is said the shortest distance between 2 points is a straight line, but at sea charting any course comes with a slur of uncontrollable factors, the winds, the currents, the swirl… Only the strongest will, the king of experience and the sharpest of intuition and overcome such overwhelming powers. Only be keeping the highest expectations and harnessing the deepest resources can one chart a course where one is and where on aims to be. There is very little chance it will be a straight line yet more often than not; it will be the right one” (emphasis added)
Sounded very similar to aspirations many have in managing a business.
At the same time, I had an opportunity to review a paper review by Dr Jacki Schirmer and Dr Ivan Hanigan from the Health Research Institute, and Institute for Applied Ecology, University of Canberra. The paper, entitled “Understanding the Resilience of NSW farmers: Findings from the 2015 Regional Wellbeing Survey”, sheds light on the resilience of NSW farmers in 2015 and opportunities to improve farmers “adaptive capacity”.
As a diversion it is worthwhile considering the definition of resilience. Traditionally defined as the “ability to cope with adversity and adapt positively to changed circumstances” or “the ability to bounce back”, Schirmer and Hagan in 2015 extend the definition to “the ability of a person, household or community to successfully adapt to adversity and to capitalise on opportunities”.
Subsequently to their work in 2015, Dr Linda Hoopes produced her book “Building Prosilience for a Turbulent World”. Hoopes defines “prosilence” as the proactive attitude a person has, which makes it possible for them to strengthen their resilience. “Prosilence is intentionally building the capability to deal with a range of challenges including those that comes with organisational change”.
At PrincipleFocus we prefer the ladder definition of resilience, whereby people, organisations and communities continue to grow their resilience capability and following difficulties and challenges emerge stronger than before. That is, they do more than adapt to meet a challenge. They learn, they develop, and they emerge from those difficulties with increased capacity to meet future challenges.
Schirmer and Hanigan produced an 83-page paper with substantial statistical analysis. To summarise a few key points:
Adaptive capacity for individuals and farm households depends on the resilience resources you can access, including
• Financial Resources
• Human resources: Health and self-efficacy
• Natural resources: Availability of key natural resources on farm e.g., Soil, health, and water storage
• Social resources: Access to support, family, and friends
The statistical analysis leads to a conclusion that farming families with a high self-efficacy (knowledge, skills, and confidence), strong personal social networks, with very good/excellent health are more resilient. The state of farm finances is also considered a key resource to best predict higher wellbeing outcomes in farming families.
In terms of improving and developing self-efficacy (skills, knowledge, capability, and confidence) and strong financial resources the study identifies that farm business planning plays a key role. Simply having a plan, whether written down or not was not strongly associated with either better wellbeing or better farm financial performance.
“However, farm business planning was associated with significantly better farm financial outcomes and farmer wellbeing if: (I) it included strategies for coping with drought assessment risks on the farm and how to respond to them; and succession planning, (II) the plan was used to help make decisions and outcomes of the plan monitored, (III) was discussed with others”
Farm business planning can support farm business resilience only if the farmer is engaged in developing a plan that includes specific planning for future risks and succussion, uses the plan on an ongoing basis to form farm management and discusses the plan with others.
It is a critical finding.
Over the last 12 months we have been meeting with many of our farming clients and discussed development of a 12 – 24 monthly financial plan. One which identifies the farming family’s business intentions, targets, and goals for the next 2 years. We have promoted that this plan should be a rolling plan.
We have also promoted that farming families should spend at least half a day each month together pouring over the plan, suggesting changes, arguing, justifying, and exacting additional value from the business. Those discussions should also include identification of risks and strategies to mitigate those negative outcomes.
We have also promoted the “Toyota windscreen model”, identifying the rear vision mirror in my Toyota Prado as important, as it is the basis of knowledge, insight, and learning from past experiences. However, the importance of the windscreen and the road forward, as demonstrated by its comparative size to the revision mirror, is critical. A family business’ focus should remain on the windscreen, the future, the road ahead . The future (windscreen) has possibility, opportunity, innovation and even change of direction, which in our view provides for increased farm business performance and improved wellbeing for farming families.
Do you have a one-page strategic plan? Do you have a 12 to 24 month forecast budget for your family business?
Peter Debus is a director of PrincipleFocus, a Chartered Accountant and Chartered Tax Adviser.