Cash Flow and Financial Management on Farms

Volatile market conditions combined with unfavourable weather conditions can have a severe impact on and ruin plans on farms. There can be major implications for cash flow and have major implications for cash flow.　

Some advice from Teagasc Head of Farm Management and Rural Development and farmers on the importance of managing cash flow

Recommendations:

Act early, even the best farmers’ 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
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 a 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 the farmers own records and accounts.

First Steps:

Complete the simple 5 minute Cash Flow Sheet.
To get a more comprehensive overview complete the Current Debt and Cash Flow Projection Worksheets.
Contact your advisor or accountant if you feel a more detailed monthly plan is required.

Options if cash is tight

The main priority is to minimise non-essential spending until cash income improves. The main areas to examine to help bridge 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.
Sale of non-essential machinery
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

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

Cost Control Planner

The Teagasc Cost Control Planner is a tool for recording cash flow and setting budgets for the future. Many farmers have been using it for years. This is supplied free to clients of Teagasc.

It runs on Microsoft Excel. To get a copy of the Cost Control Planner programme and for help using it contact your Teagasc advisor.

The ‘5 Minute Cash Flow’

Creating a cash flow budget can appear a daunting task. The ‘5 Minute Cash Flow’ is an ideal way to start improving your financial management. Remember that budgeting is not an exact science but that in most cases a ‘best estimate’ is better than ‘no estimate’.

Teagasc Dairy Specialist Patrick Gowing demonstrates how to complete the 5 minute cash flow