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
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