Financial planning for farming in 2015

Having a good feel for farming finances will always stand you in good stead, according to Teagasc.

This applies whether you are currently expanding or thinking of expansion or whether you just want to consolidate what you have and ensure that you are in a good position to weather whatever the business of farming can throw at you.

  • Monitor – Using Teagasc Cost Control Planner
  • Analyse – Using the Teagasc eProfit Monitor
  • Plan – Using Teagasc Farm Business Planner

There are two essential steps in the planning process, according to Teagasc – the thinking process and the financial process.

It says, the first step the ‘thinking process’ behind what you are intending to do. In this workbook this is referred to as the ‘farm plan’. This must be completed by the farmer before a financial plan is completed.

It involves asking yourself a series of questions on where you are going, how you will get there and what extra profit or benefits your farming plan is expected to generate. Many of these ideas are already in your head but writing them down will help clarify them for you. It will also help in preparing your financial plan and give you a much better understanding of the background to the figures in your financial plan.

The second step is the ‘financial process’ where all your financial details are analysed for your farm and family circumstances to examine if your proposed farm plan is actually viable. This is referred to as the financial plan.

The individual stages in preparing the farm plan and the associated templates to assist in the planning process, all of which are outlined in the workbook, which is available on the Teagasc website.

Stage 1: Thinking about where you and your farming operation is going takes you through the following questions:

  • Why are you farming ?
  • What are you thinking of doing?
  • How is this going to deliver on your reasons for farming ?

Stage 2: Thinking about what you have to do:

  • Where are you now?
  • What are the main issues you must focus on?
  • What do you have to do to get there?
  • When will you make these changes?
  • How will your plan affect your working day?

Stage 3: Extra costs, extra revenues and extra risks:

  • What are the extra costs?
  • What extra revenue will be generated?
  • Is it worthwhile?
  • What could go wrong?
  • The financial plan

Stage 4: Developing a financial plan. Your financial plan will help you to:

  • Assess the overall financial viability of your proposals;
  • Examine the impact of changes in key variables e.g. milk price, fertiliser price, interest rate;
  • Negotiate with and secure finance from your bank/lending institution; and,
  • Understand where you cash is coming from and going to each year during the critical transition phase of your plan.

You should contact your Teagasc Adviser/private consultant to get a full financial plan (annual cash flow, Profit and Loss and Balance Sheet for six years) prepared to fully examine the financial viability of your proposed plan.

Alternatively, you could purchase financial planning software yourself and complete your own financial plan. It is likely that your bank/financial institution will request such a document if you are seeking finance for your plans, according to Teagasc.

The Teagasc financial workbooks are available on its site.

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