Cash Flow and Financial Management on Dairy farms
Low milk prices, increasing costs and weather conditions can have a severe impact on dairy farms and havemajor implications for cash flow.
- Act early the best dairy plans and schedules may need adjustment. Delays could cause the situation to deteriorate and cause stress
- Be realistic and up front when developing your cash flow plan using the worksheet
- Consultand 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 usea cash flow plan to form the basis of negotiations withsuppliers and banks. Creditors respond best to realistic budgets and up-to-date cash flow projections supported by the farmers own records and accounts.
- Complete the simple 5 minute Cash Flow Sheet. To get a morecomprehensive overview complete the Current Debt and Cash Flow Projection Worksheets.
- Contact your advisor or accountant if you feel a more detailedmonthly plan is required.
Options if cash is tight
The main priority is to minimise non-essential spending until cash income improves. Themain areas to examine to helpbridge the gap between income and spending are:
- Prioritise essential living expenses.
- Eliminate all non-essential expenditure- both farm and personal spending
- Review Financial Repayments
- Review monthly pension, savings and life assurance payments
- Talk to your accountant NOW regarding Tax
- Involve all family members in analysis & solutions where possible.
Methods to bring in Cash
- Sale of trading stock or surplus breeding stock.
- Cash in policies/savings - Take advice from your broker/ accountant on this.
- Off-Farm income/husband/wife.
- Examine sale of assets in extreme circumstances
- Look into availing of Social Protection payments - Farm Assist, Family Income Supplement, Pension entitlement.
Cash flow management is central to business success. It is more important in times of volatile milk prices. In good milk price years, it is important that cash flow is managedto build a cash reserve and to undertake necessary on-farm improvements. 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.
Creating a cash flow budget can appear a daunting task. The ‘5 Minute Cash Flow’is an ideal way to startimprovingyour financial management. Remember that budgeting is not an exact science but that in most cases a ‘best estimate’ is better than ‘no estimate’.
National Farm Survey
The National Farm Survey (NFS) has been conducted by Teagasc on an annual basis since 1972. The survey is operated as part of the Farm Accountancy Data Network of the EU and fulfils Ireland’s statutory obligation to provide data on farm output, costs and income to the European Commission. A random, nationally representative sample, of between 1,000 and 1,200 farms depending on the year, is selected annually in conjunction with the Central Statistics Office (CSO). Each farm is assigned a weighting factor so that the results of the survey are representative of the national population of farms.
Approximately 250 dairy farms are included in this survey.
Teagasc National Farm Survey 2017 - Dairy Enterprise (PDF)
More information on the National Farm Survey
The Profit Monitor Programme allows dairy farmers to calculate their costs and profit. The programme is completed by up to 3,000 dairy farmers annually.
More about Farm eProfit Monitor
Milk Payment Systems
In Ireland over the past number of years there has been a gradual movement to multiple component pricing systems (better known as A+B-C); More details about (PDF Format), (323KB), Chapter 30 can be found in Teagasc Dairy Manual Section 5.