MOST farmers are averse to paying tax but Rural Directions senior consultant John Squires said farming businesses should not be afraid to aim to pay a small amount each year to build business resilience.
"A sweetspot has been talked about as 12-15 per cent tax which means you can handle a 20-30pc production shock and remain profitable," he said.
"If you are paying tax you are making a profit and it provides scope to fund growth from profits rather than increased debt too."
Speaking at the Adapting Your Farm Business to Dry and Variable Seasons forum in Keith last week, he said a range of people, financials, resource base, and enterprise mix contributed to how well a farming business bounced back after a major pricing, disease or climatic shock.
Equity greater than 70pc was a key attribute of resilient businesses, giving them greater flexibility to periodically take on more debt in unfavourable seasons but repay it quickly.
Farm management deposits were good "financial buffers" and highly effective at putting money away in the good years for more difficult seasons.
Off-farm investments ensured producers could redeem funds without threatening their farming business.
Mr Squires said resilient businesses had higher profit through higher production, adequate returns on capital investment, and variable costs and overheads no greater than 60pc of the total income.
"Ideally, spending $1 to make $2 would be a good gross margin," he said.
It was useful for those businesses who did not know their ratios of variable costs, overheads, financing costs, labour, depreciation, lease costs and profit to begin with financial benchmarking.
The ability of business managers to make clear, early decisions was a major asset to resilient businesses.
Ensuring people within the business had an achievable workload to make clear decisions was crucial.
Farmers needed to surround themselves with good advisers such as agronomists and accountants, and have appropriate support systems including family and friends to cope with variable seasons.
Matching feed on offer with feed demand was a major profit driver and Mr Squires encouraged livestock producers to change their reproduction window to make the most of paddock feed.
Other production strategies to build resilience included having long-term fodder reserves, systems to utilise out-of-season rainfall such a perennial pastures, and having 'safety valves' to be released in tight seasons.
"The traditional wether flock was a really good safety valve that if the season turned to dry you could shear them and sell them without compromising your breeding stock. It is less common now but having a trading mob or trading herd is a key part to resilience," Mr Squires said.
He said 'stop-go' points for supplementary feeding prevented producers "winning the battle but losing the war".
He used an example of a six-month feeding model with hay and barley in the $300-a-tonne range which added up to $126 an ewe.
"It can be expensive so you need to do the numbers before you commit to long term feeding," Mr Squires said.
Developing a six-month cash flow budget and exploring different options from selling early, agistment, grazing failed crops assisted clear decision-making.