Despite the high input prices for feed, fertiliser, diesel, electricity and so on, the record high milk prices mean that 2022 is shaping up to be a profitable year.

Now, there’s a huge difference between being profitable and having lots of cash, as any start-up business will tell you.

Most business that go under are profitable, but just run out of cash to pay bills, wages etc. So despite 2022 likely to be a profitable year for dairying, it doesn’t mean some farmers won’t be under financial pressure due to a shortage of cash.

Pressure

Those with high borrowings or a large part of the farm leased will be under more pressure for cash compared to farmers with low debt and owned land.

Servicing interest and repaying debt are two cash-hungry exercises, as is paying for a lease and these are things that not all farmers have to cope with.

Family drawings also vary widely from farm-to-farm depending on how many dependents there are and stage of life plus mortgage, etc.

Now is a good time to do a cash flow forecast as farmers should have a very good idea of what inputs are going to be used and how much they will cost. Plus, it should be possible to get a good handle on income.

To start off, print off bank transactions from January to now and go through these line by line on a monthly budget template.

This will show what has been spent and what has been earned for the year to date. Next, go through what money is currently owed and insert that into the budget when you expect it to be paid.

Assumptions

Then predict when other costs and income will arise before the end of the year and how much they will be worth. Don’t forget to make assumptions on tax, drawings and the basic income support scheme.

When you add up all the income and all the expenditure you will get a cash flow surplus or deficit figure per month and for the year as a whole.

While the overall year may be cash positive, there is likely to be months that are cash negative which means the farm will be spending more than it’s taking in.

This is common, particularly in the early part of the year. Trading through these months means that the farm account has to have a reserve in it, or access to cash via an overdraft or some other short term finance arrangement is present.

Some farmers are finding that because input costs have gone up so much, that merchant credit or overdraft facilities are maxed out.

By highlighting the cash flow forecast, farmers will have greater confidence in what they are spending but it may also highlight issues that are coming up, giving farmers time to make adjustments.