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Sunday 22 July 2018

The days of winging it are over: Poor planning takes a financial, physical and emotional toll on farmers

Expansion is no antidote to inefficiency: the gross margins on our dairy farms can range from €960 to €1485 per cow
Expansion is no antidote to inefficiency: the gross margins on our dairy farms can range from €960 to €1485 per cow

Martin O'Sullivan

Many businesses and organizations possess what is known as a mission statement, which is essentially a written statement, to say why the business exists, its values, where the business is going in the future and what it hopes to accomplish.

The very existence of the mission statement means that the owners have given due consideration to the purpose of the business and its long-term plans, goals, and objectives.

This is really the essence of effective farm planning and may sound a bit highfalutin and farfetched for your typical farmer, whose average age is nearly 60 years, and perhaps it is for many. However, it may be highly relevant for that person's successor, particularly those planning expansion.

Establishing and maintaining a viable farming enterprise in the current climate of ever increasing scale requires the employment of good business practices which are well planned and measured.

The days of 'winging it' are no more, Farming can provide a full-time and rewarding career but it is now a serious business requiring a serious business approach.

Over the past five years I have witnessed my dairy farming clients grow their businesses at a phenomenal pace which has taken many traditional family farms to a place that previous generations could not have dreamed of in terms of scale.

Many of these farms are now big businesses, requiring a huge commitment and a range of skills around human resources, health and safety, corporate

governance, financial planning, not to mention expert animal husbandry skills. The founder of a well-known Irish construction empire was quoted as claiming that the only reason why Rome wasn't built in a day was because he wasn't there.

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I am of the view that there are plenty of ambitious young and not so young dairy farmers who subscribe to the same thought process.

The recent long winter may have cooled a few heels and I know from recent conversations that I have had that there are a significant number of converts to the notion of sensible strategic and financial planning and a movement away from the notion that Rome could have been built in a day if they had been there.

The case for planning

A good farm planning process will aim to eliminate the 'make it up as you go along' strategy. which unfortunately is the rule rather than the exception.

Lack of planning can result in cash flow crises, animal health issues, fodder shortages, labour issues and ultimately stress, the farmer's enemy.

Every farmer, big, small, ambitious or otherwise should stop and take stock of where they are and where they are going.

If you are of an age where semi-retirement or succession issues need to be addressed, well then set about addressing these matters by firstly deciding what you want to do and when you want to do it. Then seek professional advice on how best to achieve your goals .

If expansion and developing your business is your goal you should start by analyzing the performance currently being achieved before you consider expansion.

Expansion is no antidote to inefficiency.

I recently examined a batch of dairy farmers accounts for 2017 and the gross margins being achieved ranged from €960 to €1,485 per cow.

For a 120 cow herd this is a difference of €63,000 which means the poorest performer would need at least 66 more cows to match the highest performer.

Chances are he would also need additional labour so in reality he would probably need a herd of 200 cows to match his efficient 120 cow counterpart.

Expansion costs a lot of money, whereas improving efficiency costs very little and may achieve the same end result with a lot less effort.

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; www.som.ie

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