Don’t Run Your Farm to Please the Bank Manager

Don’t Run Your Farm to Please the Bank Manager

Managing a farm so that there is regular cashflow is not a great way to make a profit, according to farm business specialist Peter Floyd. Farming is not a cashflow business, he says, but many farmers still try to drive their enterprise from bank statements.

“These people see cashflow reports as a major part of financial planning, and think the bank manager will be happy if some new money appears in their accounts every month. So they sell stock too soon, or make key purchases too late just to keep the overdraft down,” says Floyd.

Early sales can create feed surpluses that are wasted because replacements are often unsuitable and feed conversion efficiency drops.

The net result is inevitably more effort for less profit, but the farmers involved have difficulty realising this and are often very pleased with their management. They wonder why their business isn’t doing as well as it should, but at least the bank manager is happy – or so they think.

This is nonsense, according to Floyd. Like any other business, he says, a farm needs to be operated for maximum profit on investment over a reasonable time-frame, not for short-term comfort. For sheep and beef farmers this means running the right classes and numbers of stock for the property, managing them to make full use of feed for profit-driven weight gain.

For dairy farmers it means taking a hard look at the use of supplements, matching herd size more closely to pasture supply, and seriously questioning the value of producing more milk at high cost to meet perceived cashflow requirements.

“Only proper analyses from a profit perspective will act as a reliable guide for both borrower and finance provider. The technology to do this is now available and is being used by an increasing number of thinking farmers, with the encouragement of their enlightened bank managers,” says Floyd.

ENDS

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