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'Plan a Future' challenge: The 80:20 Group reply

Paudie and Geraldine Holden, of Mullinavat, Co Kilkenny could make a Farm Working Surplus of £35,078, according to the 80/20 Discussion Group from Limerick.

This money is available to service debt, pay tax, meet living expenses and reinvest. It involves changes in management and reducing costs to 37% of Gross Farm Income.

"The Holdens will have to make short-term sacrifices to achieve their long-term goals," says Pat Keogh, Chairman of the 80/20 Group. "They will need strong financial discipline to live within their means and perseverance to stick to their plan. If they can achieve this, their farm has the potential to provide an excellent base for achieving their goals."

The 80/20 Discussion Group is a recently formed independent group with a strong focus on financial planning and growing the farm-based business.

"The name '80/20 Group' is derived from the rule that success in business comes from managers spending 80% of their time on strategy and 20% of their time on day-to-day operations," explained Pat.

"Our group is focused on applying this principle and we have tried to approach the "Plan a Future" challenge from this perspective."

Recently, five members of the group visited the Holden's farm. They discussed their present situation and goals for the future. The following report is based on this visit. The Group structured their response in this way:

1. Strengths and Opportunities
2. Weaknesses and Threats
3. Immediate Priorities
   • -Farm
   • -Financial
   • -Personal
4. Longer-term Strategy - Plan, Do, Check, Act
5. The Potential
   • -Financial
   • -Grass budgeting for a long, low cost, grazing season.
6. Other points for consideration and conclusion

The SWOT analysis results

• The 80:20 Group began by undertaking a SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis of the enterprise.

Strengths/Opportunities

• The Holdens have recognised that they have a problem and have taken the first steps towards tackling it.
• They are conscientious and technically capable farmers.

They have an excellent farm with;

• Free-draining land
• Good infrastructure and layout - there is no further requirement for capital investment
• Good stock and surplus heifer replacements. Selling surplus heifers could form a second farm-based enterprise and also allows the Holdens great flexibility should the quota situation change in the future
• Great potential to successfully operate a low-cost, grass-based system
• Long road frontage providing site potential
• Geraldine has accounting, computer and administrative skills
• They are close to Waterford city which provides numerous opportunities for off-farm employment and the potential for Paudie to work off-farm during the winter months.

Weaknesses and threats

• The Holdens are overly concerned with external factors such as quota availability, without first attempting to focus on issues within their own control. They are not pro-active in their approach, and tend to focus on per cow production instead of farm profit.
• Increasing debt levels - Net Worth is declining
• High cost farming system currently in place - Farm Working Surplus estimated independently by group members at 42p/gal with Farm Working Expenses representing more than 60% of Gross income. This is insufficient for present level of debt servicing and personal spending
• Lacking skills required to operate a successful low-cost farming system
• Neither tax accounts or management accounts are utilised as a management tool. Use of other farm records is limited
• No monitoring of spending - farm or personal

And most importantly

• NO PLAN in place as to how they are going to meet their commitments and achieve their goals.

• The 80/20 group identified some immediate farm, financial and personal priorities for the Holdens, as well as elements of a longer-term strategy.

Farm

• Cut out the meals which are currently used to entice cows into the parlour - save £20/week. There is no excuse for this with a new, well-designed parlour.
• Milk the whole herd for a shorter period, instead of the current plan of drying off 15 cows and selling them as culls to reduce milk output due to quota shortage. Dry off earlier and leave sufficient quota reserve for the spring. Drying off earlier will enable the cows to stay out later on grass.
• Sell only genuine culls and try to retain as many cows as possible with minimum replacements- this is a relatively young herd. This will provide extra surplus heifers which can be sold as either in-calf heifers or calved heifers next spring.
• Seek advice immediately on setting up the farm for early grazing next spring - the farm has great potential for extending the grazing season
• Rent out 27 acres with tillage eligibility - boost income by £3000.Alternatively, rent out surplus land for silage cutting - this reduces the grass surplus for the Holdens to manage, reduces their own contracting bill, provides income and most importantly the land is available for grazing at both ends of the season when it is needed most.

Financial

• Sell the meal-feeding system and the feed bin. This will realise approximately £4,000 for debt reduction. Eliminate meal feeding from the system - if meal has to be fed for short periods, feed with buckets
• Any other tangible liquid assets should be cashed in to reduce debt. These include in-calf heifers and co-op shares. The shares are worth about £1,000 and the 30 heifers should fetch £21,000.
• Investigate the REPS option again and seek a second opinion. REPS could be utilised in the short-medium term until more quota becomes available
• Obtain planning permission for three sites and use this capital for debt reduction. Need to check tax implications and also be aware that this capital may not become available immediately.
• Avoid writing cheques for everyday items such as petrol and groceries. Instead, set an annual budget for personal drawings, allocate a fixed weekly or monthly sum and make it stretch. Set up a standing order for this amount to be deposited into a separate household account. Living on a fixed income is critical.
• Adopt the principle "Do I REALLY need to write this cheque?"

Personal

• Upskill - learn to operate a low-cost, streamlined, profitable farming system. Learn grass management skills to extend the grazing season and reduce feed inputs.
• Work on acquiring financial management skills - budgeting and financial planning.
• Get off the farm more and meet positive and progressive people.
• Start considering off-farm employment as a personal development opportunity as well as a source of income. Geraldine has sewing skills which could form the basis of a home-based business as well as computer and office skills.
• Paudie has opportunities for farm relief, building or contracting work. Their daughter is starting school soon which will provide greater flexibility, and their location near Waterford means that there are many employment opportunities close by.

Short-term sacrifices to achieve goals

• The Holdens will have to make short-term sacrifices to achieve their long-term goals. They will need strong financial discipline to live within their means and perseverance to stick to their plan. If they can achieve this, their farm has the potential to provide an excellent base for achieving their goals.
• Low-cost grass-based system with all stock grazing full-time February 1st -December 1st with no meal required. Current Average Cover is 1900 kg DM/ha - to carry over enough grass to graze out all stock (including youngstock) from February 1st next year cows would have to be housed from November 1st.
• However if Average Cover at the end of August was 2600 kg DM/ha, which should be easily achievable in future, all stock could stay out until December 1st.
• Projected Farm Working Surplus of £35,078 (90p/gal) available for debt servicing, tax, living expenses and re-investment, with Farm Working Expenses cut to 37% of Gross Farm income.

Longer Term Strategy - Plan, Do, Check, Act

Most of all, Paudie and Geraldine need to create a strategy for their future and stick to it. This strategy needs to incorporate the following elements

• A management plan - farm management targets, records and monitoring
• A financial plan - budgets, targets for debt reduction and plans for their retirement in 15-25 years time
• A personal plan, with input from both partners, focusing on their family/ lifestyle goals.

The Holdens need to adopt the "PDCA" cycle - Plan, Do, Check, Act.

• Plan - management, financial, personal targets as above
• Act - Take corrective action if targets are not met. If targets are met - can we do better?
• Do - implement the plan by learning new skills and staying within budget
• Check - Are targets met or bettered? This is the critical part of the process.