Question: I’ve been hearing more about having a financial buffer on the farm, but I’ve never really built one up. Any spare cash usually goes back into the business or towards loans.

With the milk price going up and down and costs staying high, I’m starting to feel a bit exposed if something goes wrong. I’m not sure how much I should be putting aside or how to do it without putting pressure on cashflow. What is a realistic way to build a buffer, and how do I know when I have enough?

Answer: A lot of farmers feel this way, especially in the last few years. When margins are tight, the idea of putting money aside can feel unrealistic. But a financial buffer is not about having a large lump sum. It is about giving yourself breathing space.

On most farms, the pressure points are easy to spot. Spring is expensive. Feed, fertiliser and contractor bills all land at once. Loan repayments still need to be met. Household costs don’t stop. If milk price drops at the same time, things can tighten quickly.

Buffer up

That is where a buffer helps. It gives you time. Instead of reacting in a panic, you can plan your next move.

The first step is to understand what your buffer needs to cover. Think about your main costs:

• Feed and fertiliser.

• Loan repayments.

• Basic farm running costs.

• Household drawings.

Add these up for a typical month. Then ask yourself: how long would I want to cover if income dropped?

A good rule of thumb is three to six months of key costs. That might sound like a lot, but remember, this is something you build over time.

The mistake some farmers make is trying to build it too quickly. That can put more pressure on cashflow. A better approach is to build it slowly when things are going well. For example, when milk price improves or costs come in lower than expected, set aside a portion of that extra cash. It doesn’t have to be a large amount. What matters is consistency.

You might decide to:

• Put aside a fixed amount each month.

• Save a small percentage of milk income.

• Hold back part of any good-price period.

• Over time, this builds into something meaningful.

A common question is whether to build a buffer or pay down debt. In reality, you need a balance. Paying off loans is important, but having no reserve can leave you exposed. Even a small buffer can make a big difference in a tight year

It is also important to keep the buffer separate from your day-to-day account. If it sits in the main account, it can easily be spent without noticing. A separate account makes it clear: this is not for everyday use.

Be clear about what the buffer is for. It is there for difficult periods or unexpected costs. It is not there for planned spending or upgrades.

Using it for the wrong reason can leave you short when you really need it.

A common question is whether to build a buffer or pay down debt. In reality, you need a balance. Paying off loans is important, but having no reserve can leave you exposed. Even a small buffer can make a big difference in a tight year.

Having a buffer changes how you make decisions. If cash is tight, you may feel forced to borrow or delay payments. With a reserve in place, you have options. You can choose the timing of spending and avoid rushed decisions. It also reduces stress. Knowing there is something behind you gives confidence, especially when prices are unpredictable.

When to review

It is also worth reviewing your buffer every year. Costs change over time, and what felt like enough three years ago may no longer provide the same level of protection. Recalculate your key expenses regularly so the buffer keeps pace with the realities of the business.

Building a buffer will not happen overnight. But even small steps in the right direction will strengthen the farm over time. It is less about the exact number and more about creating a habit.

Philip O’Connor is head of farm support with ifac, the professional services firm for farming, food and agribusiness.