Cash flow management – challenges now arising on farms across NI
The scale of the problem is such that a significant number of farmers could start to experience significant cash flow problems later in the summer and into the early autumn.
Omagh-based accountant Seamus McCaffrey explained:“Costs, across the board, are increasing for farmers at the present time. And there is no indication of these pressures easing on farm businesses any time soon.
“I am fully aware that beef, dairy and sheep prices are in a pretty healthy state at the present time. But such is the pressure now coming on input costs that these benefits are being quickly eroded in terms of the actual margins generated on farms.”
Seamus envisages many farm businesses reaching a ‘tipping point’ once cattle are housed in the autumn. At this stage additional feed bills will put even greater pressure on farm margins. This is when many businesses could start to experience significant cash flow problems.
He continued:“It’s important that farmers start generating accurate cash flow budgets now. Banks fully recognise the financial pressures that can come on production agriculture. And, for the most part, they are happy to provide the extra liquidity that businesses need when it is required.
“But the banks need accurate cash flows and projections to base their decisions on. And if farmers cannot provide these figures, it makes the job of sorting out an expanded overdraft and other financial services all the more difficult.
“The bank will also want to see an up-to-date set of accounts when it comes to making any decision on behalf of a farmer.”
Seamus specifically highlighted the challenge facing farmers wanting to carry out farm building work and repairs at the present time. He explained: “Costs have risen by between 35 to 60%. There is also a shortage of the actual building materials that farmers need to get on with these jobs, caused by supply chain difficulties. All of this is having a very major impact on the bottom line within farming businesses.
“It means that while commodity prices are good, if a farmer’s cash flow management is not tip top then we could quickly end up with a scenario where more money is going out of the business than is coming in.”
Seamus continued:“I don’t want to take the gloss off the strong commodity prices available at the present time. But farming is a business and it’s the bottom line that counts.
“The reality remains that a negative cash flow situation, if allowed to run-on for a number of months, will have a very real impact on the sustainability of any farming operation.
“Every farmer has no option but to spend a significant amount of money in maintaining machinery and buildings. At the present time, we are seeing all of these costs increasing dramatically. This is putting a severe strain on many cash flows.”
He concluded:“These trends are already very apparent in the figures being presented by our farming clients at the present time.
“It’s important that all farmers identify now the scale of the problems that are unfolding within their own businesses and react accordingly.”