When it comes to farm cashflow, not all expenses are created equal

11 November 2020

I recently travelled to see one of my clients, who struggled through the drought, to see how things were going on their farm. Their dams have gone dry and are now cracked and leaking and will need to be repaired to retain water for the coming summer. They had to sell over half of their R2 Heifers for not much more that what they were purchased for twelve months ago.

When I met with them, they told me they wanted to help one of their sons, who needed a vehicle for his building career. They asked me for my thoughts on replacing the farm Ute that has 38,000 km on the clock to assist him.

Considering their current situation with cash flow and what would be best for the farming operation, I asked them, “Do you have enough cash to purchase replacement heifers and replace the Ute?” I went on to explain how replacing the Ute would negatively impact cash flow and would be unlikely to generate any additional cash flow going forward. Whereas purchasing and fattening livestock would likely produce a cash margin for them.

With the grass growing again now that spring is upon us, most farmers will be thinking about replacing livestock that were sold early or not replaced during the drought. This may require extra funding from the bank to meet the cash commitment for the volume of livestock purchases being considered.

Any additional funding you need will have to be discussed with your bank before committing to any livestock purchases and you will likely need to provide a cash flow to show what you are trying to achieve on the farm for the year. This should take into accounts things like putting extra fertiliser on to help with grass growth, supplementary feeds requirements, capital spend and the like.

Nothing is more fundamental to the health of your farming operation than strong, sustainable cash flow enabled by good cash control. Replacing livestock is likely to result in a cash margin; using cash for capital expenditure is far less likely to.

Putting some thought now into your farm’s cashflow and what the best options are for your current position will help you be better informed to make the correct decisions that will improve your bottom line. If you’d like some assistance with your farm cashflow, get in touch with the Findex Business Advisory team.

Findex NZ Limited, trading as Findex

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