Farm Finance: The road to farming success is paved with realistic resolutions

The right resolutions can help transform farm finances and even save lives, writes Martin O'Sullivan

There is a 'staggering difference' between the best and worst performing farmers on input and overhead costs per lire of milk says Martin O'Sullivan
There is a 'staggering difference' between the best and worst performing farmers on input and overhead costs per lire of milk says Martin O'Sullivan
ACA Farmers Handbook and Tax Guide 2019

Martin O'Sullivan

Most of us like to face into a new year with a positive 'can do' attitude.

We promise ourselves that we will earnestly apply our minds to tackling those chores that we should have and could have tackled long before now but didn't because it was easier to put them on the back burner and promise ourselves that we would definitely attend to them some time in the future, whenever.

Having been engaged in advising farmers for nearly 40 years, I could write volumes on all the good, if not great, resolutions I have heard farmers outline in graphic detail. Unfortunately, most of these never moved off the New Year's list and are still just, resolutions.

I recently had the pleasure of dealing with a third generation client having previously dealt with his father and grandfather.

In the course of our conversation, he expressed his intention to tidy up the farmyard and put down a bit of concrete that would improve matters no end. I clearly recall his grandfather and latterly his father articulating the exact same resolution.

As it happens, I am familiar with the said farmyard and regrettably I have to report that it is still a bit of a quagmire. Nevertheless, hope springs eternal and I'm optimistic that the current generation will deliver a yard worthy of my best Barker shoes.

Maybe my young client's yard improvement will actually happen in 2019 because it has been entered on his New Year's resolutions list.

There's nothing like declaring your resolutions (if not to your accountant or ag advisor, at least to your family) and writing them down somewhere that they will be regularly seen.

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That serves to impose an element of accountability and perhaps embarrassment if not delivered upon.

I have compiled a list of four possible New Year resolutions for a typical farmer based on where I see the greatest need for improvement and the greatest potential dividend in terms of one's finances and general well-being.

Resolution #1: Target cost reductions

If I am to be brutally honest, farmers that I deal with, which represent a fair cross-section, generally are not good on cost control.

When quizzed about quantities of concentrates fed or fertiliser spread, the answer, more often than not, will be far from precise and generally unrelated to the true figure that is evident in the farm accounts.

I recently had cause to do an analysis of approximately 60 dairy farmer accounts to determine the input and overhead costs per litre and the range was staggering between the best and the worst.

Nutrient management, for example, is seen by many as simply a compliance measure required to qualify for the Nitrates derogation, when in reality, nutrient management has huge potential to save money and should be something that farmers should want to voluntary sign up to.

Appropriate application rates of lime, chemical fertilisers and slurries can yield a high dividend.

A small outlay on soil analysis could be the best money you will spend in 2019.

Concentrate usage along with its first cousin, forage quality, is another area where I see considerable scope for improved efficiency. Inappropriate high concentrate usage was common among the accounts that I examined. On investigation, it emerged in many cases as being an antidote to poor forage quality, whether that be grazing grass or silage. Another common thread that emerged was the lack of a reseeding policy.

Resolution #2: Deal with farm hazards

Few of us are without some task beckoning at us that badly needs doing, but try as we might, it remains undone. In my office, we refer to files of that nature as "fish files": the longer they are left unattended the more they stink.

This particular malady is common to many farmers whether it be the bit of concrete to make the yard safer and more user friendly, or the dodgy handbrake on the tractor, or the old wiring in the shed that long needs replacing.

If the only resolution that you delivered on in 2019 was to remove the known safety hazards on your farm, you will have done well and may have saved a life.

Resolution #3: Retirement and succession issues

Whether you are relatively young or perhaps of a more mature vintage, there are many important issues that should be addressed if you have not already done so.

For the younger farmer, making a will and pension funding are top of my list of recommendations. For the older farmer, this may be high time to address your succession plan

I have witnessed on far too many occasions the mess that not making a will creates, particularly where the farmer leaves a wife and children behind.

It is a known fact that making a will does not hasten your demise, nor does it cost a lot. Furthermore a will can easily be altered if you have a change of circumstances or indeed a change of mind. So my advice is to do it as soon as possible.

I have written about pension planning and the benefits of same in previous articles. Suffice it to say I am a big fan of personal pensions.

Pensions are a very tax effective way of saving, and starting young has huge advantages in terms of building a respectable fund.

The added sense of security that a pension fund brings at retirement or semi-retirement time cannot be underestimated - and the fact that the pension fund no longer has to die with you is an added bonus. This, in my view, is a must for your New Year's resolutions list, even if you think you cannot afford it. I have no doubt that there are plenty ways of saving or making a few extra thousand that could be allocated to a pension fund. Talk to your accountant!

Having regard to succession matters, talk to someone who is known to have specialist expertise in this area and seek their written advices that you can hand to your solicitor.

Resolution #4 Take a break

I referred earlier to the fact that farmers were not great on cost control.

They are worse about taking breaks apart from maybe a full day out at the ploughing which for many can be a 15-hour endurance test.

Getting away for a few days can be good for the mind, body and soul and telling yourself that you haven't the time or back-up, or simply cannot afford it are generally obstacles of no substance.

Over the years I have seen many a client struck down by a temporary illness and the farm survived quite well, even where the money had to found to pay a replacement so don't tell me you are indispensable or that you cannot afford it. Plan a break this year!

Martin O'Sullivan is the author of the ACA Farmers Handbook. He is a partner in O'Sullivan Malone and Company, accountants and registered auditors:

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