Following a difficult 2015 for many farmers, Spring 2016 unfortunately has provided little by way of relief. Reduced output prices across many sectors (in particular dairy and pigs) combined with poor weather conditions and a delayed return to grass, are contributing to the operational and cashflow difficulties currently experienced on many farms.
If you are currently experiencing, or expect to experience on-farm difficulties, it is important to share your issues rather than bottling them up.
There are a number of options available, and industry stakeholders (including your local bank manager) are there to support you and your farm business through this period of short-term difficulty.
Solutions are best tailored at an early stage – the earlier you seek help the better.
Bank support may be a key component in managing through this period of short-term cashflow difficulty. Before approaching your bank for support, I would encourage you to take time and do some analysis of the problem. This should include identifying the cause/causes of the problem, and estimating the level of support required.
Outlined below are three simple steps to dealing with existing/potential farm cashflow pressures:
Understand the root cause of the problem
While low prices may be the trigger for the cashflow pressure experienced or anticipated, if the root cause of the problem is not treated the symptoms will re-occur. There may be numerous reasons, in addition to low prices, for existing/anticipated cashflow difficulties, including amongst others: a build-up of livestock from cashflow; funding capital expenditure from cashflow; high costs of production; a high level of bank debt/repayments; and/or a high level of personal drawings (once-off or ongoing). Once you have identified the cause(s) of your cashflow problems you will be able to put a plan in place to address them.
Estimate the level of support required
In quantifying the level of support required, the best starting point is to take a look at last year’s farm performance and estimate future income and expenditure, taking account of known changes (output price; stock numbers, etc).
A cashflow projection for the coming year can help highlight how much of a cash shortfall will arise (if any) and when it will arise. This will enable you to put the most appropriate solution in place for your business at an early stage rather than continually reacting to cashflow problems during the year.
A simple cashflow-planning template is available at www.aib.ie/farming.
Develop a solution
The earlier you develop a solution to your cashflow difficulties the more options there may be available to you. For instance if the solution was to place a loan temporarily on interest only, the earlier you take action, the greater impact this will have on your business.
There are a number of other options that you can look at including holding off building up livestock numbers for a period, controlling living expenses by taking a set wage each week/month or placing recent capital expenditure from cashflow on a term loan.
At AIB we maintain a positive medium-long term outlook for the sector but recognise the short-term difficulties currently experienced and are here to help.
Our experience has thought us that there is no one universal solution suitable to all, instead there are a number of support measures that can be tailored upon the individual circumstances. These include, review of monthly repayment commitments, short-term increase in working capital facilities, short-term loan facilities and an interest-only period on existing borrowings*.
For those of you who would like to speak to somebody in AIB on how we can help you and your business, visit your local AIB branch, call 1890 47 88 33 (available 8 am-9 pm on weekdays and 9 am-6 pm on Saturdays) or visit www.aib.ie/farming.
* The entire amount that you have borrowed will still be outstanding at the end of the interest-only period.
Barry Hyland, AIB Agri Advisor