Expansion business plans questioned

The dairy expansion train has already left the station, as evidenced by the increase in dairy cow and replacement heifer numbers over the last three years, said Teagasc dairy systems economics researcher Laurence Shalloo, at a recent Teagasc seminar on Financial Planning for Expansion.

He questioned if these farmers had completed a business plan before they embarked on this level of expansion. He said rapid expansion can generate higher returns and a more positive cash flow quicker, but comes with more risks attached, and deciding on gradual versus rapid expansion options may very well come down to the person, and their attitude towards risk. All three of the major banks represented at the seminar highlighted the scarcity of really well thought-out financial plans presented to them.

They also emphasised the disconnect between preparing such plans to ‘get the funding proposal across the line’, and their use by farmers as a tool to monitor financial performance in the subsequent years.

At the same event, former IFA President and Chairman of IFAC Donie Cashman advised expanding dairy farmers to anticipate shocks and protect themselves in budgets and plans, so that they withstand the shocks. He said there must be sound financial reasons for expansion.

Undertake proper financial planning, pay close attention to management accounts, follow good farm practice, and link with your neighbours and with discussion groups to get good advice, he said. Kevin Connolly, Teagasc financial management specialist, said Teagasc tools are available such as the ‘My Farm, My Plan’ strategic planning workbook.