Angus Woods: How to avoid liquidity problems in these turbulent times
This year will test the managerial skills of many farmers across the country, with cash flow potentially a major concern in these turbulent times.
Ash flow management is a skill that is often overlooked and the level of management required varies from farm to farm depending on many things from farm type to the availability of off-farm income to the age of the farmer.
For many arable and livestock farmers, the state pension is the first time they have a steady income, and it often has a profoundly positive impact on their lives.
Arable farmers have the toughest job when it comes to cash flow, receiving virtually all of their income from September through December.
The mixed farming we do on our farm consisting of cattle, sheep and arable crops brings in some income most months but the majority still falls in the last quarter of the year.
The first quarter is the expensive period when most seeds, fertilizer and feed are purchased or delivered.
The escalation in input costs this year has led to a huge surge in trade credit, bank overdrafts and inventory credit, all of which are brought forward early in the year, while many farms do not sell grain or livestock until the fall.
The new debt could test a farmer’s relationship with his banks and dealers if communication is not good.
With producer prices so strong, the industry is confident that if managed properly, cash flow should correct itself later in the year.
Concerns about high fertilizer prices are beginning to surface as more and more grass and silage fields look hungry.
With feed prices continuing to rise, manure, despite its high price, should be bought now to avoid a shortage of grass or silage later in the year, which could force cattle to be sold prematurely or expensive meals to be purchased.
There is a real fear of getting into too much debt with dealers and banks, but with cattle and forage prices so high, the financial risk of not applying fertilizer and maximizing grass growth is also great.
The financial challenges faced by Irish farmers are being replicated around the world.
Never has there been a combination of circumstances that have depressed cash flow so severely.
The European Commission and all MEPs should make a strong case for early payment of the full basic payment system to every farmer, regardless of whether all controls have been completed.
These are exceptional circumstances and we have learned during the Covid pandemic that there is flexibility within Brussels if the argument is strong enough.
Frontloading full payment would allow farmers to pay contractors, veterinarians, traders and many others to ensure rural businesses remain solvent and farmers are not forced to sell their stocks before they are ready.
Being forced to sell stocks early would add to the financial and mental stress caused by rapid input price inflation.
Most agree quietly that 2021 was a better than average year financially. The downside to this is that there will likely be a 2021 income tax balance plus a provisional tax bill (based on 2021 earnings) to be paid for 2022, which will further weigh on cash flow.
Instead of ignoring it or worrying about it, get some early advice and start planning your cash flow for the rest of the year now.
It’s important to meet with your accountant as soon as possible to determine how much money needs to be available for this fall’s tax bill and whether steps need to be taken sooner rather than later to address any potential cash shortages.
Angus Woods is a drywall builder in Co Wicklow
https://www.independent.ie/business/farming/comment/angus-woods-how-to-avoid-cash-flow-problems-in-these-turbulent-times-41669439.html Angus Woods: How to avoid liquidity problems in these turbulent times