Are you literate – financially literate?

‘Income and expenditure I understood, but when I heard our auditors talking about depreciation, I panicked.

Issue Date: 16 February 2007

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by peter hughes

‘Income and expenditure I understood, but when
I heard our auditors talking about depreciation, I panicked.’

It was tradition in our family to visit a neighbouring farmer for tea on Sunday afternoons. We would pile into the Chev or Ford – there were only two brands of car in those days – and wind our way out of town to the farm roads. At the farm gate we passed out sweets to the kids that opened it for us.

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After arrival and the greetings and a glass of homemade ginger beer, we kids were told to disappear. When, much later, we were called to the house, the quiet tea-time chuckles had been replaced with raucous laughter, and the cold teanow seemed to be served in iced glasses. farm shed for a town kid was a magical place. The workbench with half-dismantled engines; the tool cupboard; the ploughs, mowers and hay rakes; and holy of holies, the tractors. There were also only two kinds, the Vaaljapie Ferguson and Massey Harris – the sort you see in museums these days.

I would make-believe drive the Vaaljapie for hours. I was about four years old, holding my dad’s hand, when the farmer walked us out to a nearby field which was being ploughed. The farmer picked me up and put me on the driver’s lap. soil was moist and rich, and as I write I can smell that special fresh earthy aroma. It was beautiful, and for all the wrong reasons, it was the day I decided to become a farmer. W hen the time came, it was a forgone conclusion – I would study agriculture. I got along fine in my first job. After all, I understood how to produce crops, beef and chicken. I knew all about dairying. Of course I had to learn to set a plough, to survey a contour and to weld a broken implement, but I got on OK. As time went on, I started getting drawn into the commercial end of the business. Now this was in foreign territory. Income and expenditure I understood, but when I heard our auditors talking about depreciation, I panicked.
What the hell was this? It obviously had something to do with money, but what did it mean? When they added it back as a “non-cash item” to profit in order to calculate cash flow, I was completely mystified. they mentioned amortisation, current ratio and headline earnings, I realised that I was agriculturally literate but financially illiterate. It was a shock.

Farming for me was fresh moist soil, gambolling new-born lambs, cheeping fluffy day-old chicks, and young mealie plants pushing their way through the earth. T here are of course these joys. And they are all beautiful. But the reality is that unless you know how to do an operating and capital budget; how to calculate cash flow; what depreciation means; and what opportunity and marginal cost is, you may soon be in the city looking for a job instead of savouring those special sights, sounds and smells. Are you financially literate? And if not, what are you doing about it? |fw

Contact Peter Hughes on (013) 745 7303 or e-mail [email protected]. |fw