How to get to grips with your fi­nances be­fore win­ter kicks in

It’s shap­ing up to be a chal­leng­ing win­ter for farm­ers, so now is the time to get the fi­nances in or­der, writes James McDon­nell

Irish Independent - Farming - - FINANCE FARMING -

THERE are many chal­lenges ahead over the next few years for Ir­ish farm­ers. Brexit will hap­pen in March and the cur­rent CAP will end on De­cem­ber 31, 2019.

In the mean­time, we must plan ahead.

The farm fi­nances are the best place to start. The cur­rent farm fi­nan­cial po­si­tion is a true re­flec­tion of the farm­ing op­er­a­tion.

It can be dif­fi­cult to mo­ti­vate your­self to sit down with a pen and pa­per, but it is time well spent. The ini­tial aim is to pre­dict what your bank ac­count bal­ance will be on De­cem­ber 31, 2018. This ex­er­cise is called cash flow plan­ning.

Money man­age­ment is cen­tral to busi­ness suc­cess. In good price years, it is im­por­tant that money is man­aged to build a re­serve and to un­der­take nec­es­sary on-farm im­prove­ments.

In poor price years, money 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 money short­ages.

Cre­at­ing a bud­get can seem a daunt­ing task. Reg­u­lar bud­geters prob­a­bly use spe­cific work­sheets or com­puter pro­grammes, but you could use a blank page.

Tea­gasc have de­vel­oped a sim­ple one-page sheet called the ‘5 Minute Cash Flow’. This is avail­able from of­fices and on­line at www.tea­gasc.ie.

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

A sim­ple method is to di­vide a page in two. List all in­come due to be re­ceived down the left-hand side to the end of the year.

On the right-hand side list all ex­penses due be­fore the end of the year.

To­tal up both sides and sub­tract ex­penses from in­come. This will give you a sur­plus or deficit fig­ure. Take this fig­ure and ad­just your bank bal­ance by this amount.

This fi­nal fig­ure is your es­ti­mated cash flow on De­cem­ber 31.

Pri­or­i­ties

The main pri­or­ity is to min­imise all non-essen­tial spend­ing un­til cash in­come im­proves. Here are some point­ers:

÷ Pri­ori­tise essen­tial liv­ing ex­penses.

÷ Elim­i­nate all non-essen­tial ex­pen­di­ture, both farm and per­sonal spend­ing.

÷ Re­view fi­nan­cial re­pay­ments; per­haps a pay­ment could be skipped and added to the end of a loan — this needs agree­ment from the lender. ÷ Re­view monthly pen­sion, sav­ings and life as­sur­ance pay­ments.

÷ Talk to your ac­coun­tant now re­gard­ing tax due in Oc­to­ber.

÷ In­volve all fam­ily mem­bers in anal­y­sis and find­ing so­lu­tions where pos­si­ble.

Re­duc­ing deficits

Let’s also look at the other side: can ex­tra cash be added into the bud­get to re­duce the deficit? Here are some sug­ges­tions:

÷ Sale of trad­ing stock or sur­plus breed­ing stock.

÷ Sale of non-essen­tial ma­chin­ery.

÷ Cash in poli­cies or sav­ings — take ad­vice from your bro­ker and ac­coun­tant on this. ÷ Is it pos­si­ble to get some or ad­di­tional paid em­ploy­ment? ÷ Ex­am­ine sale of as­sets in ex­treme cir­cum­stances. ÷ Look into avail­ing of So­cial Pro­tec­tion pay­ments: Farm As­sist, Fam­ily In­come Sup­ple­ment, pen­sion en­ti­tle­ment.

Us­ing credit

While there are many forms of credit avail­able (bank over­draft/ Co-op/ lo­cal sup­plier etc) some are more costly than oth­ers. Be care­ful where you get your credit as some forms don’t just have a fi­nan­cial cost.

If you leave a key sup­plier wait­ing, (eg, vet or con­trac­tor) they may leave you wait­ing at a key time. It is im­por­tant to con­sult with all sup­pli­ers as to how they will be paid.

In gen­eral the banks are the cheap­est source of credit, as it is their busi­ness to lend money.

As part of the lend­ing cri­te­ria, they will as­sess the risk of lend­ing to you. This risk as­sess­ment should work in your favour, as you need to back up your lend­ing ap­pli­ca­tion.

Rec­om­men­da­tions

Act early; even the best plans Do and sched­ules need ad­just­ment. De­lays could cause the sit­u­a­tion to de­te­ri­o­rate and cause stress.

Be re­al­is­tic and up front when de­vel­op­ing your cash flow plan.

Con­sult and draw up a plan with your Tea­gasc ad­vi­sor, agri­cul­tural con­sul­tant or ac­coun­tant — they have the ex­per­tise and ex­pe­ri­ence to help you de­velop a cash flow plan for your busi­ness.

De­cide on a course of ac­tion — use your cash flow plan to form the ba­sis of ne­go­ti­a­tions with sup­pli­ers and banks.

Cred­i­tors re­spond best to re­al­is­tic bud­gets and up-to-date cash flow pro­jec­tions sup­ported by your own records and ac­counts.

PER­HAPS A PAY­MENT COULD BE SKIPPED AND ADDED TO THE END OF A LOAN

Tea­gasc will be host­ing a Fod­der and Fi­nance Bud­get­ing Week, start­ing on Oc­to­ber 8. See and

for more de­tails on sem­i­nars and clin­ics.

James McDon­nell is a Tea­gasc farm man­age­ment spe­cial­ist; email: James.McDon­nell@tea­gasc.ie

Fod­der con­cerns have added to the pres­sures fac­ing farm­ers — mak­ing it all the more im­por­tant that they get their fi­nances in or­der farm­ing@in­de­pen­dent.ie

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