January is the easiest month to fill in a cashflow for most farmers. It is also the most important month. It is the easiest because it is when the least purchases are made and the least money comes in for most systems. This can be clearly seen across the six farmers who have committed to do a cashflow for 2016 and use it over the year.

One farmer didn’t spend anything out of the current account in January in a bid to control his cashflow until he sold stock this month. For the rest ,it was a few cheques in and 10 to 12 payments out. The biggest job was adding up the living expenses when they went though the bank account. By keeping the names of the farmers confidential, we are able to go into more detail on borrowing and living expenses. This is vital to get a complete picture of the money that is needed.

January is the most important month because you can start to see how easy it is to fill in the actual money coming in and out. It took most of the farmers 10 to 25 minutes.

The problem is that if you don’t do it for January, the job becomes a much bigger one at the end of February, when you have two months to do.

David

David milked 55 cows on 86 acres in 2015 but plans to increase to 70 cows in 2016 A progressive farmer, he has focused on many of the right things – maximising grass in the diet and compact calving. It is for this reason that his finances are strong, with some borrowings and a buffer in the bank that will protect him from the low predicted prices in 2016. However, he aims to build extra accommodation in 2016 so he has to plan carefully to ensure he does not fall into the building trap we saw with our last dairy farmer.

“It took me about 15 minutes to input the January figures. The December milk price was higher than I estimated mainly due to more litres sold. I also got a VAT refund of €985 that I forgot about when doing the budget. It meant that €2,345 came in during January, €1,450 more than the €895 I predicted.

“The farm payments out were slightly higher at €2,927 compared with the budgeted €2,555. The biggest jump was €1,099 that had to be spent on fixing a tractor. It’s hard to budget for that. Drawings were up slightly on what we budgeted. We try to put money into both saving and pensions during the year. We had budgeted for €2,500 to be made for the pension by direct debit in January. It was only when I did the actual figures that I realised it was not taken out. That was one benefit I didn’t expect from doing the cashflow. If I had not picked it up I would have assumed I was better off than I really am when I looked at the farm bank account balance.”

January cashflow

Budgeted -€5,510 Actual -€3,224

Fred

Fred had budgeted for no farm income in January but has put in €2,481 in farm outgoings for the month. “With cash tight I didn’t spend anything,” he told me. The only thing that came out of the farm account was electricity so he is €2,000 better off than budgeted.

Rearing up to 120 calves to sell as stores he also has 12 two year old heifers and 56 bullocks from last year. He is finishing the strongest 19 bullocks of these and will sell them in February. “I wanted to wait until they were sold before I started paying bills,” said Fred. While this is not ideal (for the people waiting for money) it does show one way for farmers to manage their cashflow when times are tight.

January cashflow

Budgeted -€2,481 Actual -€481

James

James was a new entrant to dairy in 2015. The move put his cashflow under stress and left merchant bills that he plans to clear this year. He did the budget to milk 70 cows on 70 acres at home, with an additional 20 acres two miles away.

I visited him and we inputted the figures together. The December milk payment was the only money in at €2,181. It was just €183 less than they predicted. The farm costs at €2,488 were over €1,000 higher than predicted.

“I spent €1,300 finishing a calf shed that I had not budgeted to pay in January. The builder gave me a discount if I paid before he left the yard,” said James. The drawings from the bank account came in at €2,000, compared with the €1,450 they had budgeted. It meant that the actual cashflow for January was -€2,357. That was nearly €1,000 more going out than expected.

“It really helps you see where the money goes,” said James.

January cashflow

Budgeted -€1,440 Actual -€2,357

Lorcan

Lorcan’s overall farm goal is clear. He plans to expand to milk 180 cows on the 64ha farm in three or four years’ time. He milked 100 cows in 2015 and has 144 cows to calve down next year, so he is well on his way.

He had a busy year in 2015, putting in a 20-unit milking parlour as part of the plan. However, Lorcan has fallen into the building trap by spending too much on buildings from cashflow. He has been busy addressing that since we first met and has met the bank and applied to increase and restructure the loan and get a cashflow drawn up as part of his plan.

On the January budget he sold five dairy cows for €3,733. He had budgeted to sell more but instead sold some younger stock. It meant income in January was €8,783, up €683 on budgeted. Farm costs were also in line at just over €7,000. “The big cost that jumped out was a payment of €13,000. I had meant to pay that in December but it slipped into January,” said Tom. It meant Tom had a bigger bank balance at the start of January, so it is not a major issue.

January cashflow

Budgeted -€792 Actual -€14,081

Eoin

Eoin’s target is clear. The farm must contribute €20,000 to the household each. With his wife working and with three children, he recently gave up a job to become a full-time farmer on 84 acres. He has 25 suckler cows and 150 ewes on 100 acres. When he sent me his January figures it was nearly bang on budget. He had predicted a shortfall of €3,440 and it came in at €3,681. “I got €500 for selling four ewes that I had not budgeted for.” On the costs side the actual was €1,935 versus €970. In that €900 was a merchant’s bill that he had omitted from the budget. With slightly less on drawings, it meant the budget was close to what he expected for January.

January cashflow

Budgeted -€3,440 Actual -€3,681

Garret

Garret owns 106 acres and rents an additional 166 aces. Like many tillage farmers, he does a bit of contracting as well. With poor price prospects again this year, he is looking seriously at the direction of his business. He plans to use the cashflow challenge to measure the profitability of each crop. We put the figures in for January together. He had predicted that €4,405 would come in for straw sales and €1,900 for contracting. All he got in was €1,000, leaving a big hole in receipts. Farm outgoings came in €490 lower than the €1,574 predicted for January. However, he paid back €8,000 on the stocking loan that was due to come out in December. With drawings over €1,000 more than budgeted, it means he the actual monthly outgoings were -€11,788 compared with a positive €2,405 budgeted. Garrett is left wondering will he drop some rented land this year as the profitability of spring barley looks so poor

January cashflow

Budgeted €2,405 Actual -€11,788

Comment

Many farmers don’t do cashflow plans because they either think they are too hard or there is no point. However, as the farmers featured here show, it is easy to do each month and it can teach you a lot about your business. They are seeing where payments have not gone through and are able to identify tight times during the year. A large number of farmers have signed up to the Cashflow Challenge. If you sign up you will get an email twice a month. The first one will be at the end of the month reminding you to fill in the actual figures. The second will be early in the next month highlighting the challenges farmers are facing and solutions they are implementing. If you don’t have a budget you can still carry out the Cashflow Challenge by keeping a record of the figures each month. So if you want to set goals, make more money and improve your financial skills in 2016, why not sign up? Go to www.farmersjournal/businesssense. You will be emailed the farmers actual cashflow and monthly tips on how to complete yours.