Planning helps cut out impulse buying

One area will be faced with larger than normal taxable incomes and the other will have created unavoidable tax losses.

April always rings the tax planning bell for me. If decisions are required prior to the end of the financial year, there is sufficient time to transact the decisions without any panic or rush.

Tax planning should also be done with cash flow requirements for the coming year in mind.

In recent times, the federal government has made significant tax changes to assist farmers with capital purchases.

I have never liked the idea of a buying plant and machinery majorly based on a tax incentive. Instead, I believe in good, sound decision-making, where tax may then get the decision across the line.

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When farmers have cash in their pocket it is easy to turn a want into a need, and sales gimmicks and pressure and a lack of self-discipline can play a role in bringing this about.

Fundamental to our decision-making should be to have a clear understanding of how cash, profit and wealth are linked. All businesses generate cash but that does not secure a profit - it is the relationship between income and expenses that determines profit.

If profit of a certain level is generated, the decisions on what to do with the profit become critical. Reinvesting some of the profits back into the business is essential to capture the benefits of new technology and ensure you have reliable and economic equipment.

It is in the very good seasons that investments in wealth creation should be front and centre of your mind. While this could be an investment in more farmland, off-farm investments should be considered.

In running a farm, reinvesting in depreciating assets is unavoidable and if that is where all your profits are going this could lead to very little creation of wealth in the long run.

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My long-held belief is the decisions that you make in good years get you through the bad ones. You have your options limited for you in bad years.

In my business planning days, I would get clients to map out their reinvestment back in the business for many years ahead. This would include debt reduction, plant and machinery investment, capital expenditure, children's education, off farm investment, and overseas holidays. Prioritising these and placing them in the year of transaction created a business roadmap. This headed off impulse buying and gave confidence for the future.

Prior to your tax planning session with your accountant, it is recommended you create a list of important questions for which you are seeking answers. I do this with my accountant and I leave a space under each question to write some brief answers or notes. Relying on memory recall is not good enough for most.