I’m starting with the man in the mirror,
I’m asking him to change his ways,
And no message could have been any clearer:
If you wanna make the world a better place,
Take a look at yourself, and then make a change’.
It’s not often I get to start an article with Michael Jackson lyrics. When it comes to the situation on dairy trouble I highlighted last week, I thought it was the best way. The rise in milk prices has boosted dairy farmers’ bank accounts, but there is still some in financial difficulty.
The farmer last week had fallen into the common traps of:
• Too much machinery, as he used to do contracting. • Too much expansion done out of cash flow. • No overdraft facility – probably because the current account was not managed properly in the past. • Not focusing on the key basics of the grass-based system He also had one major problem: not treating his farm like a business. He has to look in the mirror and make a change. He is not the only one.
Tom Rafter of Farm Finance Solutions is also coming across this problem. Tom has been working mainly with dairy farmers to address their financial needs.
“Initially, it was farmers who spent too much on buildings out of cash flow. They were relatively easy to sort out, as you could identify the capital expenditure spend and refinance it,” said Tom. “It was straightforward when the farm was being run efficiently,” he added.
However, the bigger challenge is where farmers are not efficient and have a high cost structure. The banks want to see that the farmer will change his ways before they will authorise finance.
Tom says many of these farmers are pushing for yield. “They have increased cow numbers and push out a lot more milk that looks impressive. However, once the meal, fertiliser, contracting and other bills are paid there isn’t enough left for the rest of the business.
Their cows are getting bigger, cubicles are too small, parlours do not have enough units. The capital spending does not keep up with the cow,” he added.
What about the recent low-cost loans? I asked. “In many cases, the farmers who really needed them did not get them. They simply did not have the repayment capacity,” said Tom.
I think the banks were happy to lend it out to the better farmers for 2017 working capital finance, as they knew it would wash though the system and they could get back to lending money with a higher interest rate quicker.
Farmers like David put off making the change, as the problem has become too big. The best way to start is by doing a forward cash flow for the rest of the year. With nearly seven month of the year finished, it is easy to complete.
1. You simply start by looking at what money is in your account today. Easily done for David, as it is zero.
2. Next you look at the top line: what money is coming in. For dairy farmers, the biggest is the estimated milk cheque each month. The June milk cheque has landed. You can easily work out the July cheque at this stage by adding up what you have supplied so far and what you will put in by the end of the month.
For David, it will be just under €16,000. We do this for each month, estimating the milk produced and the price. In total it is around €67,000. David is pleasantly surprised. Then you look at what other money is coming in. He expects to get in around €8,000 in cull cows and stock sales and €15,000 in basic payments. In total, nearly €90,000 comes in.
3. We then look to what is going out. To get the most from this exercise, we put a freeze on all payments that have built up. We look at what bills will be created from July to December. It total, there is €28,500. With another €15,000 to be repaid in farm loans, it means €43,500 will be paid out.
4. What is left? This leaves €46,500 to repay existing bills and create a buffer for next year.
5. Create a payment plan. Last week, we identified all the people he owned money to – it was nearly €40,000. Now David saw that there was money to pay them.
All he needed was to sit down and plan when. Then he could go to the people and agree how much and when they would get paid. It would stop the pressure of people calling to the door, which his wife hates.
However, I warned him that once you agree, you have to follow through. You have one real shot. If you show you can manage your bank account, the next step is to apply for an overdraft – but one step at a time. Before that, David knows he has to look in the mirror and make a change. CL
In brief
• Farmers struggling with cash flow have to change.• Start by doing forward budget.• Identify surplus to pay bills and create buffer.• Make a payment plan and stick to it.
I’m starting with the man in the mirror,
I’m asking him to change his ways,
And no message could have been any clearer:
If you wanna make the world a better place,
Take a look at yourself, and then make a change’.
It’s not often I get to start an article with Michael Jackson lyrics. When it comes to the situation on dairy trouble I highlighted last week, I thought it was the best way. The rise in milk prices has boosted dairy farmers’ bank accounts, but there is still some in financial difficulty.
The farmer last week had fallen into the common traps of:
• Too much machinery, as he used to do contracting. • Too much expansion done out of cash flow. • No overdraft facility – probably because the current account was not managed properly in the past. • Not focusing on the key basics of the grass-based system He also had one major problem: not treating his farm like a business. He has to look in the mirror and make a change. He is not the only one.
Tom Rafter of Farm Finance Solutions is also coming across this problem. Tom has been working mainly with dairy farmers to address their financial needs.
“Initially, it was farmers who spent too much on buildings out of cash flow. They were relatively easy to sort out, as you could identify the capital expenditure spend and refinance it,” said Tom. “It was straightforward when the farm was being run efficiently,” he added.
However, the bigger challenge is where farmers are not efficient and have a high cost structure. The banks want to see that the farmer will change his ways before they will authorise finance.
Tom says many of these farmers are pushing for yield. “They have increased cow numbers and push out a lot more milk that looks impressive. However, once the meal, fertiliser, contracting and other bills are paid there isn’t enough left for the rest of the business.
Their cows are getting bigger, cubicles are too small, parlours do not have enough units. The capital spending does not keep up with the cow,” he added.
What about the recent low-cost loans? I asked. “In many cases, the farmers who really needed them did not get them. They simply did not have the repayment capacity,” said Tom.
I think the banks were happy to lend it out to the better farmers for 2017 working capital finance, as they knew it would wash though the system and they could get back to lending money with a higher interest rate quicker.
Farmers like David put off making the change, as the problem has become too big. The best way to start is by doing a forward cash flow for the rest of the year. With nearly seven month of the year finished, it is easy to complete.
1. You simply start by looking at what money is in your account today. Easily done for David, as it is zero.
2. Next you look at the top line: what money is coming in. For dairy farmers, the biggest is the estimated milk cheque each month. The June milk cheque has landed. You can easily work out the July cheque at this stage by adding up what you have supplied so far and what you will put in by the end of the month.
For David, it will be just under €16,000. We do this for each month, estimating the milk produced and the price. In total it is around €67,000. David is pleasantly surprised. Then you look at what other money is coming in. He expects to get in around €8,000 in cull cows and stock sales and €15,000 in basic payments. In total, nearly €90,000 comes in.
3. We then look to what is going out. To get the most from this exercise, we put a freeze on all payments that have built up. We look at what bills will be created from July to December. It total, there is €28,500. With another €15,000 to be repaid in farm loans, it means €43,500 will be paid out.
4. What is left? This leaves €46,500 to repay existing bills and create a buffer for next year.
5. Create a payment plan. Last week, we identified all the people he owned money to – it was nearly €40,000. Now David saw that there was money to pay them.
All he needed was to sit down and plan when. Then he could go to the people and agree how much and when they would get paid. It would stop the pressure of people calling to the door, which his wife hates.
However, I warned him that once you agree, you have to follow through. You have one real shot. If you show you can manage your bank account, the next step is to apply for an overdraft – but one step at a time. Before that, David knows he has to look in the mirror and make a change. CL
In brief
• Farmers struggling with cash flow have to change.• Start by doing forward budget.• Identify surplus to pay bills and create buffer.• Make a payment plan and stick to it. 
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