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FORA
GE AND NUTRITION

Guide 20
1
7
FORAGE AND NUTRITION
Guide 2017
26
Tadhg Buckley
Agri Advisor, AIB
Benefits of farm financial
management and building a
resilient business
The last two years have been somewhat mixed for Irish farmers. While it is important to look
ahead and explore new opportunities, we must also watch out for the challenges that exist.
This article highlights the integral role of e ective financial management in developing an
e cient and resilient farm business
Why complete financial planning and measurement?
Farming isn't getting any easier. With income volatility
increasingly to the fore making cashflow management and
investment decisions more di cult it is becoming obvious
that improving on-farm e ciency and competitiveness is
essential to managing risk and surviving the income cycles.
The performance range among farmers, no di erent from any
other business sector, varies considerably. While certainly an
influence, the variance in performance or profitability cannot
necessarily be explained by size, land type or location in
isolation, as the technical and managerial capacities of the
individual farmer is of fundamental importance.
From experience, the more e cient or high-performing farmers
tend to have a strong support network and are more adept at
taking advice from the right sources, leaving aside information
that will not impact positively on their farm performance. Their
farms tend to be built around a simple system, driven by
defined core objectives such as maximising grazed grass on
livestock farms. The farm does not deviate from the system
due to short-term changes in market conditions.
A more simplified farm system allows more attention to detail
as it reduces other distractions making it easier to manage as
scale increases. In addition, strong financial management is
also consistently evident among the more e cient operators,
with bu ers (eg. deposit funds) in place to help overcome any
short-term financial di culties, should they be encountered.
Indeed, there is often an acceptance that livestock farmers
need to be e cient at grassland management, breeding and
other on-farm practices, however, despite being of equal
importance, financial management and planning certainly
receive less focus/attention on many farms. In many respects
this persistent and systemic issue is fuelled, in part at least,
from wider succession issues, where emphasis within the farm
family, in many instances, is typically placed on the young
farmer being good at managing livestock and grass rather
than being involved in investment decisions and having good
financial skills.
At its simplest, financial planning involves identifying the
existing and future financial position of the farm business.
A ording greater attention to financial planning can potentially
yield a number of benefits to you and your farm business,
allowing you to:
1) Benchmark your business against previous years, your
farm goals, and peers
Financial planning and measurement enables you to establish
the financial strengths of your farm business, the competitive
position of your business relative to your peers, and allows
you to identify what specific areas require increased attention
on your farm. Financial assessment should focus more on
specific cost categories than overall farm performance.
Financial measurement also allows you the capacity to
constantly monitor the progress of the business relative to the
goals initially set out, and to take proactive actions to mitigate
challenges/maximise opportunities;
2) Have more confidence in your business
Being fully aware of the financial capacity of your business will
instil more confidence when considering a new investment.
This is particularly important in cases where a significant
transformational investment is being undertaken. Having the
knowledge that the investment is based on a sound financial
footing will give confidence to a farmer who is unsure whether
the investment is a wise one or not;
3) Evaluate investment opportunities
Without proper financial information, it is very di cult to
evaluate investment opportunities. It is also vital that a
di erentiation is made between, whether the proposed
investment is value for money and, whether the business can
a ord to do the investment or not; and
4) Be better placed when accessing finance
It is unlikely that a farmer will have the capacity to access
substantial bank borrowings without having a proper financial
plan in place. However, financial planning should not be
completed only for the sake of accessing finance it should
be seen as an imperative, regardless of how a farm business
is funded. It is essential that your farm business plan is a living
document. It must always be current, accurate and up to
date a reflection of the current status of the farm; its goals/
plans for the future; and how the farm is going to get there. An