By Nigel Davies
Available cash is king, and with cashflow being squeezed it is vital to plan ahead and understand your business’s cash position and then share it with the bank.
A business which is always very close to its overdraft limit in the period just before it receives its milk cheque is in a fundamentally different cash position to one which has more substantial headroom to weather the storm of a reduction in milk output or milk price. It is the inability to sign a cheque that hampers a business making good decisions or even more importantly, being able to exist.
Now is the time to understand what impact each 1ppl reduction in price or each 5% reduction in yield will have in terms of additional cash requirement, either by updating an existing cashflow or creating a new one. How does the peak cash requirement relate to available facilities for at least four months ahead? As a rule of thumb, banking or cash facilities should be in place to support the value of at least one month’s milk above the expected peak in normal circumstances.
Armed with this forecast you can have an informed discussion with the bank to discuss the options. Good businesses will already have communicated their underlying financial performance and forecasts to their lenders as a matter of business as usual. For others, who are less organised, it is not too late now to plan and prepare this work in readiness for the cash pinch point that will occur before the milk cheque due in mid-May. Delaying the payment of creditors can buy some weeks in the management of cashflow, until new facilities can be arranged, but not months.
Many banking teams are under increased pressure currently due to additional requests from across different industries to get cash out of the door to those businesses. In this environment, the one key action for all farms wanting additional facilities or with facilities shortly due to be reviewed is to join the queue early and get in touch with your bank earlier than you would normally.
Importantly, however you contact them, be sure to keep a record of that contact as something that you can refer back to if needed. Where the issue of a delay in paperwork or change of bank personnel occurs, then such a record can be the difference between having the cash or not.
About The Author
National Training Manager
07773 936 129
Nigel.Davies@genusplc.comAt times of disruptive change, understanding what motivates the owners of farming businesses as well as an in-depth appreciation of what affects their financial performance is a key driver of success. more
