Think of an overloaded ship riding very low in the water compared with one that is not overloaded. Now ask yourself which of the two will survive a storm at sea?

Farming is the same: if your business is overloaded with debt, it might not be able to survive bad storms like droughts, diseases, high interest rates or poor market prices. Potato farmer Gary Vorster from Khowa (Elliott) shares what he has learnt about debt over the years:

Start by asking yourself why you are farming? Is it your passion? Remember that being a farmer is the most difficult job you can choose. Let me explain…

The complexity of farming

A specialist brain surgeon is very, very good at brain surgery. It is a difficult and precise job, but it is all the surgeon does, every day, over and over again! The very same surgeon might not be able to change the tyre on his car or be a very good accountant. A farmer, on the other hand, must be very good at many different things in order to be successful.

You should, for instance, be a good mechanic. If you get a mechanic from town to come and fix your tractor every time something goes wrong, two things will happen. First, the mechanic will charge a fortune, and he will probably have to go back to town to get the necessary parts to repair the tractor, and he will charge for extra travelling time. Second, he will take much longer to repair the tractor than you would if you could fix it yourself, which can cost you valuable planting time.

Also read: Death, debt and divorce – These cause great hardship on farms

Then a farmer also needs to be a good soil scientist, veterinarian, animal nutritionist, fencer, accountant, salesman, and a mentor to his staff, and be able to stick to strict deadlines, to name just a few roles. To find all these qualities in one person is very rare, but if you do, then you have a farmer!

Being successful

Try to determine what your passion is. Without passion, you will not be a successful farmer. Do you like working with chickens, cattle, sheep, vegetables or trees? Once you know what you are passionate about, then work out where you must practise this passion of yours. If you want to be a sugar cane farmer, for instance, you have to farm in an area with hot, humid weather and no frost, like KwaZulu-Natal.

Being effective and efficient

This brings me to the difference between being an effective farmer and an efficient farmer. You are an effective farmer by doing the right things, but you are an efficient farmer by doing the right things at the right times.

Everything has deadlines. If you plough and there are big clods behind the plough, you must put in the harrow while the clods are still wet and soft. If you allow the clods to get dry and hard in the sun, the harrow will simply not be able to break them up.

Like the timing of the harrow, there are many other deadlines that must be adhered to, like planting at the right time, spraying when you need to, and harvesting at the right time, of course.

Gary produces seed potatoes and maize, among others, on his farm O’Dairn near Khowa in the Eastern Cape.

Too much debt

If you go to Land Bank to borrow money to buy your farm, then to Standard Bank to borrow money for a tractor, and then to your local co-op to buy seed, fertiliser, chemicals and diesel on credit, I guarantee you that you will go bankrupt.

This is the overloaded ship I referred to. You must at all times manage your debt responsibly.

The magic debt ratio is to be at less than 30%. Let me explain: Take all your assets – property, livestock, tractors and implements, improvements, input supplies on hand and debtors – and then divide it by the total amount of money you owe to various creditors, and you will have your debt ratio, which should never be higher than 30%.

If the debt ratio is 40% or more, you will probably need to consider selling some assets to reduce it. If the ratio comes in under 10%, you should consider expanding, as the tax man will be taking ever more of your income.

If you work out the ratio just after planting and you have paid for all your inputs it can go to 35%, but it must drop to below 20% if you work it out after harvesting, shearing or selling livestock.

You are on your own

In life, you are the only person putting money into your pocket. Assume that everyone else only wants to take money out of your pocket!

Everyone wanting to do business with you is only there so they can make money out of you, otherwise they would not be there.

Do not think banks put money into your pocket – they will come and collect everything they lent you, plus extra to cover the interest they charged.

It’s true that the government sometimes gives grants “for free”, but they get it all back in the form of taxes, like PAYE, the fuel levy, import tariffs, capital gains taxes, estate duty and many more.

Remember, you are the only person who can ensure your survival and grow your business.

Also read: From handshakes to contracts: Securing your farm’s future

The way forward

To recap, try to stick to the following basic principles at all times. Get this right, and I guarantee you that you will start to enjoy farming:

Pay cash for your first asset(s).
Rent before buying.
Grow as fast as you can without going into too much debt.
You must be passionate about what you do.
You must first be effective by doing the right things, but you must also be efficient by doing the right things at the right times.