Cashflow budgeting is one of the most powerful tools any business can use. Farmers know a lot of what will come in the farm account – they know how much they will get for their basic payment and greening up to 2019, as well as payments made under Areas of Natural Constraint (ANC). Many have signed up for the different pillar II schemes as well.
A cashflow budget is just a month-by-month breakdown of when money comes in and when money goes out of the farm. Armed with one, you can quickly see when money will be tight and when bills can be paid.
If you really want to use a cashflow to help you in 2016, why not download the cashflow in the form of an Excel sheet. It is very simple and it does all the additions and subtractions for you. Of course, there are plenty of more advanced ones available, such as the Teagasc costs control planner, if you want to get into more detail. Sometimes simplicity is the key to getting it done.
Step 3. Start with what you know
At the start of the year, these are the payments that will definitely come in. They will be your basic payment and greening payment, your ANC payment and payments under pillar II schemes. There could be some variation as to when they come in, but in most cases it is best to put down when they were put into your accounts last year.
Step 4. Work out your incomingsDairy farmers should estimate the volume of milk they will sell and the price at which they will sell it. Cattle farmers should draw up a selling plan for the year. Most suckler farmers sell from September through November. You know the numbers so you have to make a call on what month you will sell and how much you are going to get. You can go on the prices you got last year or change them if you think they will be different. A word of encouragement – just make your best guesstimate. It will not really matter if you get the month you sell or the sales price slightly wrong. If anything, it is better to be conservative when setting prices.
Step 5. Tackle your expensesThere are two way to do this. If your system is the same, you can go by your expenses last year. They can be tweaked if you think fertiliser prices will be up or down. The biggest issue is identifying the difference between when you buy and when you actually pay. It is only when you pay for inputs that it has an impact on your current account. So put in the amount for the contractor in the month you expect to pay him. I know mine tends to wait until October/November to be paid but others will want payment sooner. The same can be said for merchants, although letting these bills build up is costly due to the high interest they charge. Try to work through each heading and identify the costs you are expecting. Tip – use last year’s invoices/chequebook to guide you, but consciously work out if it will be lower or higher this year.
Step 6. Look though your old bank statementsThis will pick up any direct debits you have going straight out of your accounts. ESB, accountancy payments, etc can be filled in for this year.
Step 7. Identify loan repaymentsYour old banks statement will identify loan repayments. Check to see if they will be the same this year.
Step 8. Include drawingsEstimate how much you will need to live and put this in as a monthly expense. Some farmers have a separate bank account from which they pay a sum for drawings in each month.
Step 9. Step back
Once you have done your cashflow, look at how the money flows in and out on a monthly basis. The easiest way to visualise this is to set up a graph that lays it out. I have done this on the excel spread sheet. For many suckler and tillage farmers, the first half of the year is the hardest as there is little money coming in.
Step 10. Act on the pictureWith a full picture, you now have to act on what it spells out. The first question you need to ask is if you are going to breach your overdraft, even for a short time? Banks have become unforgiving on this so you need to meet them to either extend an overdraft or arrange a credit line. A credit line will be a cheaper option than trying to rely on merchant credit.
Step 11. Make it a habitOnce you have set up your cashflow budget, you should look at it at the end of each month. Your predictions can be replaced by the actually payment you got in for that month and the cheques you paid out. It can also tell you the payments you will be making next month. For example, if you had the contractor down to be paid in July and he was not, you know that he will be looking to be paid in August. You just move that payment into August and see the difference it makes.
Step 12. Start today Ideally, a cashflow budget can be done at the start of each year. However, now is as good a time to start as any. It will not be precise but it will definitely give you a clearer picture for the year ahead.
Cashflow budgeting is one of the most powerful tools any business can use. Farmers know a lot of what will come in the farm account – they know how much they will get for their basic payment and greening up to 2019, as well as payments made under Areas of Natural Constraint (ANC). Many have signed up for the different pillar II schemes as well.
A cashflow budget is just a month-by-month breakdown of when money comes in and when money goes out of the farm. Armed with one, you can quickly see when money will be tight and when bills can be paid.
If you really want to use a cashflow to help you in 2016, why not download the cashflow in the form of an Excel sheet. It is very simple and it does all the additions and subtractions for you. Of course, there are plenty of more advanced ones available, such as the Teagasc costs control planner, if you want to get into more detail. Sometimes simplicity is the key to getting it done.
Step 3. Start with what you knowAt the start of the year, these are the payments that will definitely come in. They will be your basic payment and greening payment, your ANC payment and payments under pillar II schemes. There could be some variation as to when they come in, but in most cases it is best to put down when they were put into your accounts last year.
Step 4. Work out your incomingsDairy farmers should estimate the volume of milk they will sell and the price at which they will sell it. Cattle farmers should draw up a selling plan for the year. Most suckler farmers sell from September through November. You know the numbers so you have to make a call on what month you will sell and how much you are going to get. You can go on the prices you got last year or change them if you think they will be different. A word of encouragement – just make your best guesstimate. It will not really matter if you get the month you sell or the sales price slightly wrong. If anything, it is better to be conservative when setting prices.
Step 5. Tackle your expensesThere are two way to do this. If your system is the same, you can go by your expenses last year. They can be tweaked if you think fertiliser prices will be up or down. The biggest issue is identifying the difference between when you buy and when you actually pay. It is only when you pay for inputs that it has an impact on your current account. So put in the amount for the contractor in the month you expect to pay him. I know mine tends to wait until October/November to be paid but others will want payment sooner. The same can be said for merchants, although letting these bills build up is costly due to the high interest they charge. Try to work through each heading and identify the costs you are expecting. Tip – use last year’s invoices/chequebook to guide you, but consciously work out if it will be lower or higher this year.
Step 6. Look though your old bank statementsThis will pick up any direct debits you have going straight out of your accounts. ESB, accountancy payments, etc can be filled in for this year.
Step 7. Identify loan repaymentsYour old banks statement will identify loan repayments. Check to see if they will be the same this year.
Step 8. Include drawingsEstimate how much you will need to live and put this in as a monthly expense. Some farmers have a separate bank account from which they pay a sum for drawings in each month.
Step 9. Step back
Once you have done your cashflow, look at how the money flows in and out on a monthly basis. The easiest way to visualise this is to set up a graph that lays it out. I have done this on the excel spread sheet. For many suckler and tillage farmers, the first half of the year is the hardest as there is little money coming in.
Step 10. Act on the pictureWith a full picture, you now have to act on what it spells out. The first question you need to ask is if you are going to breach your overdraft, even for a short time? Banks have become unforgiving on this so you need to meet them to either extend an overdraft or arrange a credit line. A credit line will be a cheaper option than trying to rely on merchant credit.
Step 11. Make it a habitOnce you have set up your cashflow budget, you should look at it at the end of each month. Your predictions can be replaced by the actually payment you got in for that month and the cheques you paid out. It can also tell you the payments you will be making next month. For example, if you had the contractor down to be paid in July and he was not, you know that he will be looking to be paid in August. You just move that payment into August and see the difference it makes.
Step 12. Start today Ideally, a cashflow budget can be done at the start of each year. However, now is as good a time to start as any. It will not be precise but it will definitely give you a clearer picture for the year ahead.
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