Six steps to improve your finances and your long-term prospects
Many farmers are glad to see the back of 2018, and will now wonder what 2019 will bring.
Issues such as Brexit and market volatility are beyond our control, but there are still plenty of steps farmers can take for themselves to improve their finances and long-term prospects.
Here are a few that should be considered:
1. Farm Succession
The average age of Irish farmers is now almost 60.
Given that most people retire aged 65, it seems many farmers never step down.
For many farm families there is no succession plan in place, and many more have no will made.
You should make a will - otherwise the State decides how your estate is to be divided; and ideally it should be checked every few years and updated if there is a change in the family circumstances.
2. Farm Income Review
On average, incomes were down 15pc in 2018, a significant figure.
How do you increase your income in 2019? The simple answer is to produce more (animals, grain or milk) for sale while controlling or reducing cost.
Many costs were cut in 2018, so feed could be purchased. In 2019, we need to build up a feed reserve for animals and maintain production.
There is no easy solution. The best place to start is to sit down with your Teagasc adviser and complete a detailed analysis of the income and expenditure for 2018.
Ideally this analysis should be based on the Teagasc Profit Monitor. This allows you to benchmark your farm's performance with other similar farms.
3. Plan for 2019
This is the next step after reviewing 2018. Figuring out with your adviser how to maximise the income from the farm will give a list of tasks.
This should lead to writing a budget for the year ahead.
The aim of the budget should be to predict what balance will be in the bank account on December 31, 2019.
Any attempt made at this will be time well spent, as by going through the process, you will learn how to manage the business better.
Teagasc have some paper or online tools available to help with this task.
4. Investing in 2019
I never liked the term 'cutting costs', but you do need to manage what you invest to get the best return.
Some examples: the spend on concentrates could be reduced by growing more grass; having clover in the sward increases the amount grown; spending money on nitrogen should not be done in isolation - calcium and phosphorus are possibly more important.
The return on investment for lime and phosphorus is 10:1. These are good costs to invest in.
Everything farmers produce comes from the soil, making a solid investment here will provide a return; unfortunately the return is not exactly instant, but it will be seen over a number of years.
This kind of investment needs to be planned carefully with your adviser's help.
5. Land rental
The cost of rental in many areas is high, yet there is a shortage of land to rent.
For some, renting out land by using the tax-free incentives would increase the family's income.
Investing in rented land is a tricky question to answer; some rent in land so that it can make a contribution to the costs of running the farm, even though the rented land would not be profitable on its own.
Be careful: making an investment in rent needs to be carefully looked at. The land should make a profit, or at the very least be integral to keeping the farm business going.
6. Something different
There are many other options out there worth considering. These include:
- Forming a partnership with a family member or neighbour
- Planting some forestry, while maintaining the same stock numbers
- Going organic
- Contract rearing of heifers
- Share farming
Invest in yourself in 2019; sit down with your adviser and get their guidance. Write down a plan, and hopefully your New Year's resolution will stick.
James McDonnell is a financial management specialist with Teagasc; Email: James.McDonnell@teagasc.ie
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