Do your sums now to ease cash flow
THE difficult weather conditions of 2012 and the first half of this year have left a legacy of problems on farmers, all of which have implications for farm cash flow.
Poor growth, allied to poor grass utilisation and the inability to harvest adequate winter fodder due to difficult ground conditions, have led to high and unanticipated expenditure in purchased feed and fodder. Add to this reduced output and the result is unprecedented merchant and short term debt levels on many farms.
The immediate consequence of this is that cash flow is very tight and in some cases may not be sustainable without some adjustments. From a farm management aspect it is imperative to try to take early control of the problem and to implement an appropriate budgetary strategy before things drift out of hand and become more difficult and costly to rectify.
INCOME AND EXPENSES
The first step must be to prepare a simple cash flow from now until the end of the year. Identify outstanding bills that must be paid, the amounts due to merchants, creditors and co-op and quantify the amounts that must be met this year. Add to these the amount due in loan repayments and lease agreements and any overdraft commitments.
Then attempt to quantify all expenditure that will arise for the remainder of the year. Both farm running expenses and household expenses, and all sources of household income including sales of milk, livestock and crops, direct payments, off-farm income, child benefit, pensions etc. If a gap exists between income and expenditure which is greater than approved overdraft or merchant credit limits it is time to take action.
CONSIDER THE OPTIONS
One or more of the following may be relevant. Essential living expenses should be prioritised. Try to eliminate any non-essential farm or personal expenditure for this year. Talk to your bank early about restructuring or consolidating any loan commitments. Look into the possibility of 'repayment holidays' on machinery and leasing agreements. Approach merchant creditors; you may be able to work out a deal and avoid penalty interest on overdue accounts. Consult your accountant now about potential tax bills and plan in time.
Cash in-flow may be improved by selling trading stock or surplus stock due for culling.
Before savings or other investment policies or assets such as shares are cashed in again get the advice of your accountant or financial adviser. He will advise on the cost/benefit of such actions and on any implication arising from this action.
The possibility of qualifying for Farm Assist, especially on smaller farms where there are a number of dependant children, should not be overlooked. Contact the Social Welfare Office or the local development company, such as North & East Kerry Development or South Kerry Partnership. They have people available who are familiar with the qualifying criteria and can help.
Finally, the most important message is to do the sums now, and if a problem seems to be looming, act in time. There is plenty of help available from Teagasc, consultants and accountants, and be pro-active in dealing with your bank manager and merchant creditors.