Trust the numbers, not tradition, when making farming decisions

Dirk Lesch produces wheat, canola and wine grapes on the farm Elim near Malmesbury in the Western Cape. He does his bookkeeping himself, he says; it gives him a good overview of his business and ensures every cent is accounted for.

Sentiment and tradition are a farmer’s worst enemies, and it will always be a mistake to base your decisions on those factors. I believe every one of your farming branches should be separately profitable.

Wheat contributes about 70% to my turnover, followed by canola (25%) and wine grapes (5%).

Grain farmers should compare systems rather than crops. Previously, I farmed with a wheat-medics rotational system and earned my income through sheep on the medics. Then, five years ago, I did the maths and realised the numbers were not adding up, especially in our dry summer months when you have to buy feed for your animals.

On Elim, a cash-crop system made much more sense. Tradition and sentiment flew out the window when I decided to sell all my sheep and convert to a more profitable system.

As a farmer, I admit it is not always easy to sit behind the computer for bookkeeping, but I have forced myself to do it religiously. Sometimes I fall a little behind, but then I prioritise the office work to ensure I catch up.

Also read: Making informed decisions

I prefer to do my VAT, my cash book and all my analysis myself. Not only does it keep me on top of what is going on in my business, but I also believe a bookkeeping clerk won’t mind as much as I do if a R1000 or so falls through the cracks towards the Receiver, whereas I want to be sure I claim every cent that I can from SARS.

Keep it simple

A few months after I graduated from Elsenburg Agriculture College, my father passed away, and I took over the farm. Initially, I continued with his system of doing the books by hand. When computers appeared on the scene, I taught myself to use spreadsheets, first WYSIWYG, later Quattro, and finally Excel.

These days, more sophisticated programs, like Pastel, are available that allow you to link invoices and more, but I still prefer my system, which is much simpler.

With the help of the local office of the Department of Agriculture and my accountant, I developed a bookkeeping system that suited my needs. I have a VAT sheet, my cash book, a sheet for analysing bills from the cooperative, and one for debtors and creditors.

To eliminate mistakes, I have a column on the side that indicates when something doesn’t add up. It gives a good overview of my business, and when I need historical information, I can quickly go back to records from years ago.

Once a year, I send all my files to my bookkeeper in town. They know my system well and helped me, over the years, to refine it. Their knowledge of the legal aspects is valuable and necessary.

Cash flow is king

I create an annual budget with the previous year’s fertiliser, fuel and chemical bills in mind. Usually, I add about 10% to allow for escalating costs; if I’m wrong and costs rise less sharply, I score. When the season’s expenses end, I work out my average spend per hectare. From there, it is easy to determine your cost per tonne.

With all this information on hand, I feel on top of the business finances and equipped to make financial decisions over the short and long term.

Also read: Business advice from livestock farmer Thabo Dithakgwe

All I can say about cash flow is that it is very, very important. Often, farmers cannot afford to buy fertiliser or fungicides due to cash-flow problems, and you see the results during harvest time.

I sell my wine grapes to small private cellars. They pay me around May. I receive most of my income in December. Sometimes, it requires us to live frugally to make it to the end of the year. By accepting a deferred contract price, you can receive some income at other times of the year.

Buy only what you need

I believe in buying only what I need. It is of the utmost importance to have reserves in your farming business. I put money away whenever I can. I don’t use the bank’s money to farm on debt. This year’s income determines the following year. If it is a bad year, I lie low in the next and don’t incur any unnecessary costs, such as replacing tyres when they still have a bit of tread on them.

When it comes to saving, one must also be wise. You can make big financial mistakes by saving on production inputs. Come harvest time, you’ll know precisely where you skimped and made mistakes.

Also read: Second-generation farmer reveals 5 financial rules that saved his 950-hectare operation

I firmly believe that no farmer can start without a mentor. When my father passed away, I found myself in deep water. Oom Louw Truter, our neighbour and my father’s close friend, became my mentor.

Later, when another younger neighbour of mine started farming with his dad, I told him you only know something about farming when you pay the bills yourself, and not your dad. He has often told me that that was the best advice he ever got.