Talking Dairy

Turn good into great with 3 moves for wealth creation | Ep. 119

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If you want more control, confidence, and options in your business, building strong financial skills is one of the most powerful steps you can take. This episode shows you how to strengthen those skills so you can grow long‑term wealth and stay steady through whatever the season brings.

DairyNZ business specialists Sarah Brown and Paul Bird break financial management down into three simple parts: profit, drawings, and investing. You’ll learn how to benchmark your performance and budget with purpose so you can spot opportunities early and stay ahead of rising costs and changing payouts. They also share practical habits to reduce stress, smooth out variability, and avoid surprises - and explain how to invest surplus cash wisely, from essential upkeep to growth opportunities.

You’ll also discover levy‑funded tools you can use today - like DairyBase benchmarking, budgeting templates, cashflow tools, and courses such as Mark and Measure and Business by the Numbers - to keep building capability and confidence. 

Links mentioned in this episode:

Disclaimer: 

The content in this podcast includes general commentary on market trends. It should not be considered as investment advice. Certain transactions, such as those involving futures, options, and high-yield securities, carry significant risks and may not be appropriate for all investors. We advise seeking independent legal or financial guidance before making any investment decisions.  

Have feedback or ideas for future episodes? Email us at talkingdairy@dairynz.co.nz

Connect with DairyNZ

Stay up to date with advice, latest research, tools and resources. Read, browse, scroll, listen, or be there in person. Visit dairynz.co.nz/get-connected 



Setting The Scene

SPEAKER_01

Ki ora and welcome to Talking Dairy. I'm your host Jack McGowan from DairyNZ. It's great to have you with us. Over the past few seasons, dairy farmers have experienced some very strong payouts. That's helped build confidence, strengthen balance sheets, and for many people accelerate equity growth. But we're also seeing that the milk price has come off its peak, and as often the case, what next season looks like is uncertain. At the same time, many farmers are receiving around$2 per Fontera share of capital back into their farm businesses, creating options like paying down debt or investing for the future. And we've also seen herd-owning share milkers equity grow significantly as cow values have increased, although high cow prices make it more challenging for those who are looking to buy herds now. Add to that, weather patterns are becoming increasingly unpredictable, and it's clear that farmers are having to manage more variability than ever before. When you put all of that together, it highlights just how critical good financial management is. So joining us are Dairy and Z business specialists, Sarah Brown and Paul Byrd, who many of you would have worked with to help understand your numbers and make confident, well-informed decisions. And that's what this conversation is about today. Why financial management matters so much. Sarah and Paul, it's so great to have you back on Talking Dairy again. Hey Jack.

SPEAKER_00

Hi, Jack. Thanks for having me.

SPEAKER_01

Let's start by finding out a little bit about each of you. Sarah, you go first.

SPEAKER_02

I've been um with the RNZ for a number of years, but prior to that I was working rural banking. I'm in the Waikato area, but we're actually farming ourselves. So we're in South Waiketo on a 430-cow farm, and we also manage another couple of farms neighbouring us. So yeah, it keeps us busy.

SPEAKER_01

Very busy. Thank you, Sarah. And Paul?

SPEAKER_00

Yeah, so I've been involved in the advisory side of dairy farming for several decades now. I won't sort of say how many, uh, but yeah, for a little while. And I actually started off my working life after uni in the in a rural bank. And so really started getting interested in in financial management at that stage. And the area that I do find quite interesting is that when I started, my financial knowledge was actually very weak going into a bank. So I sort of really appreciate people looking at this whole topic, and it's a little bit daunting if it's not your strength. And so I've spent a big part of my career thinking about that and trying to encourage people to jump into it because once you start doing it, it's actually not that hard.

SPEAKER_01

Okay. Yeah. So, Paul, why is financial management so important?

SPEAKER_00

We've always known intuitively that it's important, but we've recently done some survey work trying to sort of link actual farm profit with financial management capability. And that work starting to show that there's a really strong correlation. So the business owners that are making more money have got stronger financial management and stronger financial management skills. So we know that correlation is clear. And we also saw a strong correlation between goal setting, you know, in a clear direction in relation to financial management skills. So we know there's a really strong link there. But my suggestion to people is actually start off thinking about your sort of your life and your direction of where you're heading around getting that clarity of what you want your life to be like in the future. For most people, those dreams will come to fruition more easily if you're making profits and growing wealth, and that requires financial skills. But but really get that picture clear of what you want your life to be like, and then that will sort of lead you into, you know, right, we've got to really focus on financial management. And it is like a new language. You know, if you go and start trying to take Spanish lessons, you come out of your first lesson, you might be able to order a coffee, but and so you feel confident, then you go into a cafe and they say, Well, do you want a large or a small and what sort of milk do you want? And you're gonna be freaked out. So think of financial management of just building layers, learn how to order the coffee, build layers of your knowledge, and it'll take one, two, three, four years. But you've just sort of got to start. You've got to just get into it, and it will have a big impact on your life and your wealth over time.

SPEAKER_01

Okay, so it sounds like you know, a clear vision for your future and then goals falling out of that is the place to start.

SPEAKER_00

Yep.

Three Pillars Of Farm Finance

SPEAKER_01

All right, so I guess, Paul, there's a number of aspects to financial management. Can you tease those out for us and talk about how they fit together?

Benchmarking And KPIs In Practice

SPEAKER_00

Yeah, so we we think there's sort of three main areas around financial management that you've really got to focus on. And, you know, we spend quite a lot of time talking about the sort of the farm operation, you know, optimizing farm profit, which is really important. And I'll mention a bit about those sort of KPIs and things in a minute. The other two are around what you draw from the business, you know, for a family farm it might be like personal drawings. For a larger entity, it might be dividends to shareholders. So that would be the second area, the drawings. And the third one is what you actually do with, you know, your surplus cash, your profit, and that's about investing that money to grow over time. In terms of the actual farm profit, there's two parts of it, there's looking back at your business over time. And so that's really about benchmarking. You know, how's your business performing? And we have great systems and tools in the dairy industry to to enable you to do that, such as Dairy Base, and there's other advisors and accountants have benchmarking systems. And so, for example, I was just having a look around the different regional information. For example, Tatanaki, you know, in this 24-25 season, farm owners' average operating profit was$5,000 per hectare, which it sounds quite high, and a$4 milk price and 8% return on assets. So that sounds great. It was a fantastic year. So, you know, if you're benchmarking your business, you'd say, well, where do we sit compared to$5,000 per hectare if you're in the Tatanaki region? So, whatever your business, wherever you're farming, make sure you do that sort of analysis. And then, you know, and I think Sarah's probably going to go into more detail, is really around looking forward, that sort of budgeting, cash flow management monitoring, absolutely critical part of financial management as well.

SPEAKER_01

Thank you, Paul. Sarah, Paul talked about the importance of farm profit and and benchmarking and budgeting as being important parts of that. And you mentioned drawings. Can you tell us more about drawings?

Drawings Linked To Strategy

SPEAKER_02

Yes, drawings are actually a really important part of financial management, in that I think a lot of people don't realize they need to be directly linked to their farm business strategies. They kind of feed into one another. So the data or the research we've taken from Dairy Base shows that that top 20% in regards to performance tend to draw less from their businesses as a general rule. That's kind of shown over time. Drones is always a little bit of a hard one in that we work very hard as farmers for our profits and for our families. Um, so I guess it's about balancing what's right for the business with the journey. So having a strategy that suits the size and stage of your business. So they'll change over time. So keeping them low and reinvesting when you're just entering farming and maybe you don't have a family, you can really accelerate those returns. But for a contractor or share milker, they can be a bigger part of your revenue, those drawings. So it's for a contract milker or a share milker, they can be a bigger part of your revenue. So it's important to know what's sustainable for your business. So that's actually doing a budget for your personal drawings. Um, it doesn't need to be hard. It's allocating a figure at the start of the year. And if you're anything like me, I'm not great at planning ahead, if I'm completely honest. So we'll take our annual amount and I'll split that up weekly and I'll set up an automatic payment. It comes into my account, and I know that's what I've got to live within. And I know there's family holidays, etc., within that. But like I said, I'm not that forward-thinking. So anyone can do it. It's just setting a limit around those drawings that align with your business and allow your business to grow at the rate rate it needs to, but to support your family at the same time.

SPEAKER_01

It sounds like you've found a way to um manage your own behavior there with the automatic transfer. And I guess that thinking about drawings connects back to, you know, your vision for the future and your goals, which Paul talked about at the at the start.

SPEAKER_02

Yeah. So having your um personal goals align with your your business goals is like imperative. One feeds directly into the other. As I said, that top 20% are just generally drawing less from the business. So understanding where you stand as a business and then how much realistically you can draw is kind of that first step. And then how you manage yourself, I would say, is the is the second one.

SPEAKER_01

You also talked about investing profits wisely. Is there a framework or an approach to think about for investing profits?

Investing Profits With Intent

SPEAKER_02

Investing profits wisely is kind of one of the main parts to like financial management, I would say. It comes down to being really deliberate about where your money goes. So your first priority being the business itself, you need to make sure the farm can operate well. For example, that depreciation is a tax-deductible expense for a reason. So it's a real cost. And that that profit that you make from the business needs to be re-reinvested back into it, into things like infrastructure and machinery and any essential upgrades to keep the farm running. So I guess it's where do we invest those profits that we're going to get the most bang for our buck? So it's about planning ahead. For example, we have a meeting at the start of every season before we put together our budget. Where can we allocate the capital or the profits that were generated from that year? And it's not always necessarily what goes on your bottom line. For example, we've just done upgraded all the staff housing. And whilst that doesn't add to your bottom line, it's creating an environment that attracts good staff and keeps them there. So they're yeah, comfortable and happy with where they live.

SPEAKER_01

Okay. Sarah, you talked about the importance of getting good return on how you reinvest profits. How do you make sure you're making the right decision there?

Weighing Tangible And Intangible Returns

SPEAKER_02

So once you understand that your farm is operating well and you're looking to invest um to grow or expand, a good rule of thumb is to only invest where the expected return is above the cost of borrowing. So if you're borrowing that money, if your interest rate was say 5%, and you want to only invest if the return is 8% or over, then that's a way of knowing that 3% of that profit on every dollar is above that borrowed money. And that way it ensures you're getting a good return on that investment. And what I would say about investing in farming is there's so many ways of investing. So there's there's buying stock, there's cows, there's repaying debt, but there's also things like buying an investment property. So that's where we've spent all our profits over the years is buying investment properties. We rent them out, and then that cycles money back into the system when we went share milking, sold down a couple of those and utilized one property to actually buy the cows for the share milking. And so there's multiple ways to skin a cat. Investing is not just investing in an investment portfolio, and it's not complicated once you understand the basic principles. And once again, talking to the right people and getting support in that space is really important. And I guess the great thing is that we talk about these top 20% of farmers all the time, but you don't actually need to be in the top 20% to be doing really well as a farmer. Um, over the decades of seeing that people who consistently do the three things we've just mentioned, which is generating strong profit, managing drawings intentionally and investing wisely, compounding their profits over time, and they're generating amazing long-term wealth.

SPEAKER_01

You mentioned that you had invested some profit into upgrading staff housing. How do you calculate return on things like housing, things that have a less tangible return rather than an obvious cash return? Like, you know, how do you weigh that up against something that does have an obvious cash return?

Budgeting For Milk Price Uncertainty

SPEAKER_02

Yes, I guess that shows how the personal strategy overlays, I guess, some strong on-farm policies as uh staff happiness and probably animal welfare are two really strong themes across that. That's kind of our higher level strategy. So we kind of apply that over our business decisions. So um, we've had some really good long-term staff. Like they've been there for seven years, they show up every day, they're positive. We want to give them back a little bit of what they've been giving to the business. So that if that means um investing some money in the housing, that's really an investment in our business because that meets those higher-level business strategies. And the way we do that, I guess, responsibly is we get multiple um quotes. So I'm quoting one one business versus another, I always use this example, but we looked at roofs and there was 15,000 versus 25,000 between the two quotes to do the exact same thing. So just making responsible decisions there, making sure that the money or the capital's there and investing that back in is kind of how we make those decisions. Yeah.

SPEAKER_01

Thank you, Sarah. So, Paul, back to budgeting, which you mentioned earlier. What milk price should farmers use when doing their budgets? You know, milk price is coming off highs of$10, but we've obviously gone through periods of milk price below$4.

SPEAKER_00

Yeah, that's a really good question. And I was just looking back at the initial forecast, you know, at the start of the year, and you remember back to the range was like between$8 and$11. And so this milk price thing is very difficult to predict. And I almost think we've got to almost gotta pull out of that and not get too focused on that. You know, most people are you know looking at sort of that$8.50 to$9 sort of mark going forward over time. So I think using those sort of figures for your budgets and for looking at your investments over time is fair and reasonable. If you go too conservative, then you would never do anything. So, you know, if you suck$7 in there, you're never going to buy a cow or go sheep milking or buy a farm. Some people go too conservative and it sort of holds them back. But the only thing I'd say to balance that is that yes, we want to be positive, but you need to prepare for a financial storm. And we know, you know, you talk to people that have been farming for, you know, 15, 20, 30 years, you know, every 15 or 20 years, there will be one or two of these sort of financial storms that will come at you, you know, really low milk price, it could be a drought, it could be interest rates. And so you don't want to be taken out in a financial storm. And so you've got to stay positive, but you've almost got to prepare that second financial storm budget that's got contingency built in that you can cope with whatever. And it won't be a sustainable budget, but you can stay in business, hunker down, and be there when the storm abates. You know, if you if you compare it to our engineers, they build a bridge and they they might calculate, well, the bridge is going to be about 100 tons of weight going across the bridge. They don't build the bridge for 101 tons, they build it for 200 tons. And so you've got to think about your farm business like that. Prepare for a really tough situation and then put that budget in the drawer and you hope you don't have to bring it out. But if it does come at you, you're ready to go and you'll survive. So be positive, but have the um conservative budget ready to go if it's required.

Cash Flow Monitoring Tactics

SPEAKER_01

Right. Thank you. Sarah, as a farmer, you have experience managing your own cash flow. Um, you've already talked a little bit about how you manage it. Yeah, so how do you go about this to ensure you hit your targets?

Working With Your Banker

SPEAKER_02

So for me, managing our cash flow is really about staying on top of our numbers and making sure we're hitting our goals. I've mentioned earlier, um, well, goals sounds quite intense or lofty, but actually it's just at the start of the year saying last year we did really well in these spaces. We're going to look for some places to save money or be a bit more efficient this year and in these three lines and how we go about that is quite broad. We have the discussion and it goes from there. It sounds quite intense, but really it's just a conversation at the start of the year about looking forward. So we usually check our expenses. So once we've put the budget together every year, we base it off our previous year's numbers. And then, like I said, if we've got anything we would like to put into the budget for that coming season or any operational efficiencies we want to create, we scope those out. But then once we've got that budget and we've spread it over 12 months, all we do is bi-monthly, when our GST is done, we compare that to the budget. If you've already done the 12 months, the work's already done. You just pick up your GST actuals and you compare. My rule of thumb is if it's kind of the variation between my budget and the actuals is over 3%, then I look at it. What was it that made it so different? Was there an unexpected cost? And from there we'll make some adjustments accordingly. Um, that can be deferred accounts, it can be a lot of things, or reigning some costs in. But like I mentioned earlier, a true business cost is the drawing side. So controlling myself through that is the automatic payment. Um, the other good thing about that automatic payment is if you have to dip back into the business account, you can really ring fence how much additional money you've spent and why. So it's a very good way. And then you can just attack that back onto the drawings figure, but it's a true way to keep yourself a bit in line. And then finally, just setting clear targets makes it easier if you need a bit of support in that space. It's not ever as Paul said earlier, it's not our natural inclination to go maybe work in that space. But if you really monitor your numbers, it actually makes it a bit easier. If there's a shortfall or something coming, then you can talk to your bank ahead of time. It builds a good relationship, strong communication, but it it means nothing stops you running your business as usual. It takes out the any potential bumps in the road.

SPEAKER_01

And bankers generally want to see the budget and the cash flow, obviously, if you've borrowed from them. Do you have any tips for people dealing with their banker in relation to budgets, given you've also worked as a rural banker?

SPEAKER_02

Cash flows and budgets are very important. As I've said though, people don't naturally aren't always comfortable in that space. So once again, using your rural professionals is completely acceptable. And you're not expected to build a budget from scratch if you it's your first time. But utilising those professionals, getting advice from them, but making sure you actively input into it creates a strong budget for that year ahead. And it shows that you're organizing in control of the business. So if you're going to the bank with a robust budget and you can explain where you've allocated capital and profits and why you're doing what you're doing, it's still very much relationship banking. They're going to have faith that you can kind of meet, meet those targets. So monitoring of the budget becomes simpler throughout the year because you really understand it. And if there's any communications that need to be had with your rural professionals or anyone else, you can see them coming well in advance. It's a relaxed conversation. There's no pressure. And often that builds a really reputable relationship with your bank.

Tools, Training, And Practice

SPEAKER_01

So you talked there about using the rural professionals around us to help us put together our budget and cash flow, but also the importance of understanding it deeply ourselves. Paul, what DNZ tools are available to help farmers with that financial management?

SPEAKER_00

Yeah, we've got some really good tools on the website, or people can find on the website. We've got annual budget tools, we've got monthly cash flow tools. So people can just go on there and download nice Excel budget forms. So yeah, they're very popular. We have the dairy base benchmarking system. So, you know, that's covered through the levy. So there's no direct cost for farmers to, you know, send their accounts in and they get a benchmarking report. So really everybody that's got a business, contract milkers, she milkers, farm owners should be utilising that. Dairy Training Limited, which is a subsidiary of DRNZ, they have some excellent budgeting courses, really thorough courses to learn how to do budgeting. It's called Business by the Numbers. And if you're starting out in business, contract milking 101 is an excellent course.

SPEAKER_01

And is that just for contract milkers?

Key Takeaways And Where To Find Help

SPEAKER_00

Yeah, the contract milking 101 would really be suitable for variable order shear milkers and contract milkers that are just starting out learning about contracts and getting those first budgets done. We run, Sarah and I, we run the uh mark and measure course, which happens once a year. I get quite a few people ringing, ringing me, and I think Sarah the same. They ring, they ring us and they're a bit concerned because they think they're coming into this sort of financial house of all these all these experts in the room. And I say to them, look, you don't worry at all about wherever your knowledge is, you'll get something out of market measure. Measure. So I'd really encourage people to come along to that. And I guess just to really emphasize the fact that financial skills is yes, it's about courses and training as a starting point, but you've really got to take that personal responsibility around practice. You've just got to practice and practice and practice, and you'll get better. And it's having that mindset that financial management is a core skill. You know, a lot of us we talk about production, but financial management is a core skill that will lead you to achieve those goals that you want. So training plus practice, you know, you're going to achieve those dreams that you want through farming.

Closing And How To Stay Connected

SPEAKER_01

Thank you very much, Paul. And um obviously we they can farmers can find those things on our website, or they can use Daisy now, the chat bot, which will, you know, you can even just ask Daisy a a number like, you know, what is the 10-year equity forecast? That's a terrible example of a question. Farmers have far better questions than me off the cuff. But but yeah, you the farmers can go on there and and work with Daisy and just ask Daisy questions like you would ask Paul questions if you were in person with them. That's right. All right. Thank you so much, Sarah and Paul, for sharing your insights. Today's conversation really reinforces that financial management isn't about spreadsheets or isn't just about spreadsheets. It's more about creating options and confidence for the future. When farmers are clear on their goals and they understand their profit and keep drawings in check, invest wisely and stay on top of cash flow, they put themselves in a strong position to navigate the ups and downs of dairying. With milk price uncertainty, changing weather patterns, and costs always evolving, good financial management becomes one of the most powerful tools you have to stay in control, make informed decisions, and build long-term wealth. So thank you very much for listening, and we hope this encourages you to keep strengthening your financial skills one step at a time. If you're keen to explore the tools mentioned today, you'll find budgeting templates, partial budgets, equity forecasting, and more at dairynz.co.nz forward slash business. That's it for this episode of Talking Dairy. Thanks for listening, and we'll catch you next time. Matewa. If you'd like to get connected with DairyNZ's latest advice, research, tools, and resources, whether it's reading, scrolling, listening, or in person, you can visit dairynz.co.nz forward slash get-connected, and don't forget to hit follow to keep up to date with our latest episodes. As always, if you have any feedback on this podcast or have some ideas for future topics or guests, please email us at talkingdairy at dairynz.co.nz. Thanks for listening and we'll catch you next time on Talking Dairy.