Managing cash flow is critical in any business but especially in the dairy sector, writes Niall Kerins, Teagasc Listowel, Co. Kerry.
Cash is the key driver to operate an efficient dairy system on a day-to-day basis, but have you considered how you can manage cash reserves during periods of low milk sales?
On spring-calving dairy systems, cows are naturally slipping in milk production as they pass the half-way point in lactation and this decline obviously has a knock-on effect on milk sold off the farm.
Sitting down today and calculating your predicted milk sales for the remainder of the year, along with any stock sales, will be an invaluable lesson for you.
It’s back to basics with cash budgeting by being realistic on what you predict to spend and subtracting it from what revenue you predict to generate off the farm.
Review bank statements or cheque book stubs from the second half of 2018; this will give you a prediction on what is expected to be spent to run the farm for the latter half of this year.
Where herd size has stayed similar to last year, review your co-op statements from last year, as again, these will give you a guide as to milk sales for the remainder of 2019.
Act on time
Building up a resilient cash reserve from milk or stock sold can be described like making surplus silage during peak growing conditions. Like the surplus bales fed in difficult grazing conditions, surplus cash saved can be used during periods of low milk sales.
There are many aspects of your business which you may look at to offset future expenditure in the winter months.
For example, many dairy farmers will be drying off and dosing cows in the winter months which will automatically generate a bill with your vet or merchant.
Is there a debate here to purchase and pay for these supplies sooner rather than paying for it later when cash flow may be tighter?
When calculating your cash flow budget, it is important too to look at who you owe money to, such as the feed merchant, banks, co-ops, vet, contractors and the list continues.
Review your own living expenses too as the farm needs to provide you with income to pay for the household over the next few months.
Act on time as milk sales begin to decline on the farm and consult with your accountant or advisor should you require assistance with cash flow budgeting.