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The Rural Voice, 1992-07, Page 38Professionally Speaking And you thought all you had to do was attain good yields .. . by Bob Loree, C.A. Recent data released by Agricul- ture Canada serves to highlight the ongoing struggle farmers encounter in their efforts to ensure the financial soundness of their operations. While the projections for Ontario farm income for 1991 and 1992 show an overall increase in estimated income for 1992, the source of the increase is not necessarily better yields, increased prices, or reduced costs. As noted in Table 1, in 1992 total receipts are expected to increase by 8.5 per cent, and net income is expected to increase by 12.2 per cent. Many ana- lysts, however, are looking at the source of the increases with concern. The increase in gov- ernment program receipts from approximately $300 million to $653 million represents the 2. To ensure capital acquisition deci- sions are prudent. Purchases should stress assets which offer flexibility. The decision to buy must be support- ed by cost/ benefit analysis. 3. To follow world events — recognizing those which may have an affect on the farm's operations and profitability. Although no one would programs as they come on stream. The accounting system for the farm should ensure all programs can be easily accessed. A continuing relationship with the OMAF rep will be needed to ensure adequate evaluation of each new and existing program. 6. To maintain a satisfactory relation- ship with the chief lender to the farm. If the lender requires projections, financial statements or other documents, ensure he receives them in the format he desires with information which is as accurate as possible. Lenders become unsettled if they must struggle to under- stand the format of the informa- tion or if they discover signifi- cant inaccuracies in the data. 7. To keep financial advisors informed of the plans for the operations. Such experts can not read the farmer's mind. However, they can minimize the annual income tax burden to the farm if given adequate information in a timely fashion. They can also assist with the transfer of the farm to the next generation. Keep the communication lines with them open. The 1990s are throwing numerous challenges at farming. To survive and prosper, the farmer must use all available management tools. If he does not possess the ability or time to complete all the required manage- ment duties, the farmer must ensure the operations are provided those functions by someone — either an advisor, family member or partner. Unfortunately, the years of earning adequate yields and letting the rest fall into place are probably gone — perhaps forever.0 Projected Farm Income — Table 1 1992 Projections (millions $) Crop receipts 2,111 Livestock receipts 3,097 Government programs 653 5,861 4.771 1,090 -86 1.004 Operating expenses Net cash income Inventory change Net income 1991 & 1992 1991 Projections (millions $) 1,943 3,160 300 5,402 4,652 751 144 895 lion's share of the increase. The government program receipts will be 65 per cent of net income. Such an increased reliance on go- vernment support begs the question "How long can such support conti- nue?" With no signs of either federal or provincial deficit problems easing, many expect farm programs to face tough scrutiny. When the axe falls on programs, the individual farmer will be left to his own managing skills to survive and prosper — with a large share of his current profit gone! To survive the '90s, the farmer must assume similar management duties as other business people. Those duties include: 1. To ensure the farm financing allows the maximum flexibility in the future. Debt loads must be reduced as much as possible. The required debt must be matched to the life of the asset it supports. Long-term debt should be used to acquire capital assets while operating debt should be used to acquire inventories, feed and other inputs. 34 THE RURAL VOICE expect to fully evaluate the progress, politics, and implications of the GATT talks, the 1990s farmer should have a solid knowledge of the issues addressed by the talks and consider possible implications on the farming operation. 4. To review all production and marketing practices for efficiency and profit contribution. Often, certain accounting information must be available to complete such reviews. If such information is not available, the farmer should talk to his accountant to discuss how the accounting or book- keeping system can be revised. Although the farm manager does not have to be an accountant, computer operator, or bookkeeper, he is responsible for having such skills available to the farm to allow profitability analysis. 5. To ensure the farm operation takes advantage of all government programs including NISA, the refunding of GST, the minimizing of provincial sales taxes, and following new Professionally Speaking is a monthly column featuring a different expert each month. Bob Loree is a Chartered Accountant with the firm of Ward & Uptigrove in Listowel.