Listen, managing your finances is no joke, and if you’re running your own farm or agribusiness, your time is limited. Luckily, Food For Mzansi TV and Bertie Hamman from Standard Bank are here to make your life easier.
If you’ve been keeping up to date over the past week, you’re already a fundi in getting your farm’s finances on the right track. From budgeting and keeping an eye out for debt to what it means to be overcapitalised, you’ve now got a head start on managing your business, but we’re not done yet. On today’s episode of Food For Mzansi TV, Hamman talks about compounding your profits, and how time can have an impact. So, let’s dive in.
What is compounding your profits all about?
If you are looking to build your wealth, you’ve got to be patient. By adding a little bit to your income over a period of time, you can avoid inconsistency and earn more over time. This might seem a bit confusing, so we asked Hamman to give us a short example.
If you start with R1000 and you make a 10% profit, you will end that period with R1100. Then, the next year, you will start with R1100 and if you make a 10% profit, you will end that period with R1210. This is the basis of compounding your profits. Instead of a flat structure where you are earning the same amount, by being patient and putting your profits back into your business, you can earn more than you regularly would.
What should I know if I want to begin compounding profits?
As Hamman says, “Rome wasn’t built in a day”. Working consistently towards your long-term goals, instead of taking unnecessary risks, is the focal point. He highlights some components to keep in mind – remember to watch the episode for his full breakdown.
- Be patient.
- Be consistent.
- Maintain some predictability.
Because the agri sector is so unpredictable, with so many variables outside of your control, you’ll hear many farmers say that they actually avoid budgeting. But if you are patient, consistent and create a strong budget, you will be able to predict any variables or obstacles, and you will be able to build up your income.
So, what are the actual benefits of compounding my profits?
- Easier access to finance: By being patient and staying consistent and predictable, financial institutions are more likely to trust you, because they know that you know what you are doing, and that you are a responsible investment.
- You will maintain consistent profits: We all want to avoid the situation where you earn a record high in Year One, but a loss in Year Two. That sort of unpredictability frightens many institutions, whereas recording a consistent profit (even if it’s lower than you’d like) instils a sense of trust and predictability that financial institutions and collaborators are looking for. (Tune into the episode of Food For Mzansi TV for Hamman’s detailed scenarios, which illustrate why maintaining consistent profits is better than recording highs and lows).
What should I do to get the benefits of compounding profits?
- Have a very realistic objective.
- Prepare a well-thought-out budget.
- Track your progress against your budget and account for any changes.
- Be patient and consistent.