Livestock before vehicles a better bet

Irecently travelled to see one ofmyclients, who struggled through the drought, to seehow things were going on their farm. Their damshave gone dry and arenowcracked and leaking and will need to be repaired to retain water for the coming summer. They had to sellmorethan half of their R2 Heifers for notmuchmore than they paid for them, 12 months ago.

WhenImet with them, they toldmethey wanted to help one of their sons, whoneeded a vehicle for his building career. They askedmeformy thoughts on replacing the farm ute that has 38,000kmon the clock to assist him.

Considering their current situation with cash flow and what would be best for the farming operation, I asked them, “Do you have enough cash to purchase replacement heifers and replace the ute?”

Iwent on to explainhow replacing the ute would negatively impact cash flow and would be unlikely to generate any additional cash flow going forward. Whereas purchasing and fattening livestock would likely produce a cash margin for them.

With the grass growing againnowthat spring is upon us, most farmers will be thinking about replacing livestock that were sold early or not replaced during the drought. Thismayrequire extra funding from the bank to meet the cash commitment for the volume of livestock purchases being considered.

Anyadditional funding you need will have to be discussed with your bank before committing to any livestock purchases and youwill likely need to provide a cash flow to showwhat you are trying to achieve on the farm for the year. This should take into accounts things like putting extra fertiliser on to help with grass growth, supplementary feeds requirements, capital spend and the like.

Nothing ismore fundamental to the health of your farming operation than strong, sustainable cash flow enabled by good cash control. Replacing livestock is likely to result in a cash margin; using cash for capital expenditure is far less likely to.

Puttingsomethoughtnow into your farm’s cash flow and what the best options are for your current position will help you be better informed to makethe correct decisions that will improve your bottom line. Talk to your business adviser or get in touch with the team at FindexNZfor assistance.

■ The views and opinions expressed in this article are those of the author/s and do not necessarily reflect the thought or position of Findex.

Nothing is more fundamental to the health of your farming operation than strong, sustainable cash flow