Advice for dairy farmers: Cash flow sheet only five minutes’ work

The Five-Minute-Cash-Flow is part of a brochure which has been sent to all milk suppliers via their milk purchaser.

The brochure highlights advice for dairy farmers in relation to managing cash flows during 2016, and is also available online in the publications section of the www.teagasc.ie website.

In poor milk price years, cash flow must be managed to ensure that all essential bills are paid (including living expenses) and that no long term damage is done to the business, due to a cash shortage.

Farmers have been advised to act early, because even the best dairy farm plans and schedules are in need of adjustments, and delays will cause the situation to deteriorate, bringing extra stress.

Farmers are urged to complete the simple five-minute Cash Flow sheet sent to them, and they can move on to complete the Current Debt and Cash Flow Projection worksheets to get a fuller picture.

They can then contact their adviser or accountant to help them complete a more detailed monthly plan, if required.

Your Teagasc Advisor, Agricultural consultant and accountant have the expertise and experience to help you develop a cash flow plan for your business.

Using your Cash Flow plan, you can decide on a course of action to form the basis of negotiations with your suppliers and banks. Creditors will respond best to realistic budgets and up-to-date cash flow projections, supported by the farmer’s own records and accounts.

Cash flow management is central to business success.

In good milk price years, it is important that cash flow is managed so as to build a cash reserve, and to undertake necessary on-farm improvements.

It is even more important in times of volatile milk prices.

Creating a cash flow budget can appear a daunting task.

Budgeting is not an exact science but in most cases, a ‘best estimate’ is better than ‘no estimate’.

The five-minute cash flow is an easy way to work out net cash flow, and your predicted bank balance on December 31.

But it is important to be realistic and up front in developing your cash flow plan.

For example, if your milk price estimate for the rest of the year is off target by 1 cent per litre, it will adjust your income by €100 per 10,000 litres.

Options where cash is tight

The main priority is to minimise non-essential spending until cash income improves.

The following are the main areas to examine to try and bridge the gap between income and spending.

* Prioritise essential living expenses: eliminate all non- essential expenditure- both farm spending and personal spending.

* Review financial repayments:

(1)

Examine the option of reducing bank repayments through either availing of a temporary interest-only period or extending the term on existing loans (where feasible).

(2)

Where machinery leasing or hire purchase agreements are evident, consult with your finance provider to examine ways of reducing monthly repayments on a temporary basis, where possible.

(3)

Engage with your merchants/farm input suppliers and keep them informed. Examine the potential for structured repayments, to avoid paying excessive penalty interest on overdue accounts.

* Review monthly pension, savings and life assurancepayments: look at pension/life assurance/savings policies, can some of these payments be reduced?

Before taking this course of action, ensure you are fully informed of the implications of amending or cancelling existing insurance or assurance plans.

* Talk to your accountant now regarding tax; what is the tax bill liability on October 31?

Plan now, to avoid another cash flow shock.

Use the accountant’s expertise to review your cash flow in relation to taxation and its financing implications.

* Involve all family members in analysis and solutions, where possible.

Methods to bring in Cash

* Sale of trading stock or surplus breeding stock: target beef cattle/stores for sale, or early sale of cull stock, especially where you may be tight for fodder.

* Cash in policies/savings; take advice from your broker/ accountant on this.

* Off-farm income.

* Examine sale of assets, in extreme circumstances

* Look into availing of social protection payments:

(1)

Family Income Supplement (if the spouse or farmer is employed off the farm).

(2)

Farm Assist

(3)

Pension entitlement.

Other Issues to Address

Take account of price volatility in all future plans.

Volatility is likely to be a feature of the dairy sector in the future.

Review the main efficiency factors on your farm, where can you get the best return for your efforts. Don’t be forced to cut ‘productive costs’.

Where to get further assistance

The brochure sent to milk suppliers lists contact details for the main banks, farming organisations, accountants, Mental Health Ireland, MicroFinance Ireland, and Money Advice & Budgeting (MABS).

  • The Teagasc brochure of advice for dairy farmers on managing cash flows during 2016 is part of the Dairy Forum Financial Management Initiative.

The Dairy Forum, chaired by Agriculture Minister Michael Creed, includes the main stakeholders from the Irish dairy sector, comprising farm organisations, co-ops and processors, the Department of Agriculture and its agencies, and the banks.

Its main focus is on strategic issues for sustainable development of the dairy sector, and the current programme of cashflow and financial management is one of the initiatives agreed by the Dairy Forum.


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