Managing cashflow is key over next six months as superlevy fines kick in
Published 04/12/2013 | 02:30
"Turnover is vanity, profit is sanity and cash flow is reality," is a powerful saying that is most apt for this backend. It is especially true for farmers facing the challenge of managing their cashflow this winter and coming spring, where the superlevy fine is being withheld on over-quota milk.
With such good autumn weather and over 40c/l being paid for high-solids milk, it made financial sense in many a mind to continue to supply milk over-quota.
However, the reality of money being held back, combined with wet weather and falling grass supplies at the beginning of November, has seen numerous herds dry off earlier than planned this November.
For over-quota herds, that will mean a limited income until the April milk cheque is received next May. For this reason, a cashflow budget is an essential tool to assess the farm's current cash position and predict where it will be next spring.
Obviously, the more effort you put into this exercise, the more you will get out. Determining monthly income and expenses will make you more informed as to when and by how much the cashflow will be under pressure.
There are numerous spreadsheets and accounting packages that can help you with this process. However, although all dairy farms are a business like any other, monthly cashflow budgets aren't readily found in every farm.
There are several reasons for this, but the unpredictable challenges that nature throws at farm expenses have under-standably made farmers sceptical about the value of this exercise. But when facing a situation where income will be limited, it's important to have some idea how large the deficit will be and what the restrictions on spending are.
This will make you consider all your options rather than arriving at a deficit which is so large that it impacts on the day-to-day running of the farm, and may require long term finance to resolve it.