Chapter 7: Conclusion
Chapter 7: Conclusion
7.1 Meeting The Objectives Of The Thesis
The first objective of the thesis was to investigate the difference between the uses of financial analysis in the farming industry as opposed to traditional best practice. This research suggests that a lack of control and stability of farm output limited the usefulness of financial analysis in planning, control and decision-making. The relatively small number of transactions also limited the need for financial record keeping. Farmers are not solely financial managers, their love of the land influencing the high-asset structure, and in many cases they rather retain this low return. Therefore, any under-use of financial information in useful areas by many farmers is a conscious decision, based on their belief that financial information does not enhance farm management. This is the main barrier that has to be overcome.
The second objective of investigating whether financial information would become more important in the future resulted in a positive affirmation, with young larger operators beginning to embrace it. In the future, there will still be the same uncertainty in planning and decision-making, however control will be vital in terms of cost efficiency.
In this way, the tying together of the two objectives resulted in interesting findings.
7.2 Implications Of The Findings
7.2.1 What The Research Has Concluded
Expect for Doyle (1994), there was no previous empirical research available that directly relates to financial analysis in farm management. Instead, the related literature review was conducted through analysing writings with larger goals, mainly manuals citing tax planning, importance of bookkeeping, and use of IT in farm management. Their raison d’être was due to an under-use of farm financial management, but these authors did not investigate the reasons for the under-use.
Only now with the changing farming industry, is there a need for serious change in the use of financial analysis if farmers wish to maintain a sustainable farm income. In Chapter Three (page 20) of this thesis it was stated:
The area of financial reporting in the farming industry, is not applicable, as the vast majority of farmers are sole traders. Combining management accounting information for financial accounting purposes is solely for tax compliance reasons.
With the need to consolidate into partnerships, this may change. However, while previous research was busy searching for solutions to the financial analysis deficiency, such as educating farmers in bookkeeping, or simply letting the computer make decisions for you, this thesis makes the simple but vital distinction that a farmer, as a sole trader, cannot be an expert at all aspects of the business, therefore generally more employment of professional analysts will be needed. However, the root of the problem is persuading farmers of the benefits and need for increased financial analysis in the future farming industry, and a need to change the structure of the individual business.
7.2.2 The Importance Of The Conclusions
From the beginning, this thesis stated that in the past Financial Analysis In The Irish Farming Industry was not researched significantly, so it would be appropriate to assume there was not a major problem with how decisions were being made in farming.
This thesis however, comes at a time when the Irish agricultural sector is entering an era of great reform. Nobody can dictate at this point what the sector will consist of in ten years. However, in light of this research, it should encourage reflection among each division:
Farmers: The importance of being financially minded in planning, control and decision-making in the future, and being aware of the means available to achieve this.
Accountants: A consideration of how farmers perceive the value of the services they provide, and how farmers can be encouraged to make use of further management consultancy services as their businesses expand.
To Regulators: To consider what action needs to be taken to ensure that Ireland’s primary sector restructures successfully, and farmers are ready to become effective farm managers of the future.
7.3 Areas For Further Research
This thesis only begins to fulfil the needs outlined above. As discussed in Chapter Four, a more comprehensive study may have to be conducted before any action is carried out to align the farming industry, and the use of financial analysis, to cope with the future changes.
This would involve a nationwide rather than a localised interview base, and there would be a need to identify the specific requirements of each agricultural sector, as well as the other socio-economic objectives of the new regime, to decide what action needs to be taken, and when it needs to be implemented. This is as a result of some sectors of the industry being affected differently from the changes, which was not within the scope of this research.
This study took a normative approach, beginning by discussing how financial analysis should be used in best practice. Another approach would be to take an inductive approach, to solely assess how financial analysis is used in practice. This would involve a more in-depth and extensive study. It could also be correlated to the lack of use of financial analysis in other small owner-managed businesses (Marriott and Marriott, 2000).
7.4 Concluding Comments
This thesis set out to identify problems and a need for change, not to select the best solution. No expert or economic model can reliably predict what the future holds for the Irish farming industry, and whether a financial analysis deficiency will continue. The reason for this lies in the radical changes in the industry, and yet these changes cannot fully be explained by traditional economics.
This thesis is one of investigation, an explanation of why farming as a business is inherently different from other commercial ventures; yet the need for some level of financial analysis remains. It should be viewed as a collection of interpretations on the subject from farmers and accountants involved in the industry. The industry needs to be prepared for the new commercialised environment, and this thesis should be read in light of comprehending the financial transition, and some of the options available.
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