Tips to avoid running out of cash after a difficult year
2018 has been challenging to say the least and current estimates suggest that there could be a swing of €500-700/per cow in net cash when 2018 is compared to 2017.
Teagasc says that most farmers have estimated their fodder requirements and put a plan in place to make up any deficit. The same, it says, should apply to your cash flow needs.
Obviously cash reserves can be used, but what if cash reserves are running on empty? Teagasc has the following tips to avoid such a problem arising.
- Running up larger bills with suppliers, contractors, merchants or co-ops is not the answer. You need these service providers to remain in business to support your business;
- The first step is to estimate likely receipts and payments to the end of the year (at least) and to the end of next April (after the first big milk cheque of 2019). Also estimate the size of any cash shortage;
- The next step is to arrange to meet with your bank manager to discuss your business needs;
- Once obtained, approval in principle for a loan usually holds for six months, so engage with your bank sooner rather than later if credit is required. Options include:
- Looking at sourcing additional working capital rather than using overdraft facilities to make up the difference as the interest is generally lower;
- Retrospective financing of capital spent during 2017 is an option for those who invested from cash last year;
- Seeking an interest-only option on farms that are highly borrowed;
- Availing of credit options available through different co-ops;
- Finally, it is better to deal with this issue and put a solution in place than let the cash position dip into the red and hope that it will work out. It is amazing the peace of mind you will achieve by putting a solution in place.