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Brian Eccles, Cashmanager Rural.
In a volatile market there is never a better time to take financial stock of a business.
This new trading environment has dairy prices unpredictable, and borrowing to cover operating costs is inevitable for most dairy farmers. They will want to limit that exposure in future.
To keep overdrafts to a minimum over the next 12-24 months requires some big tactical decisions. Getting a financial snapshot of their business will help farmers do this by confronting the new environment with clarity.
Until now, making incremental changes to make farms highly efficient has been the main focus. But right now producing as much milk as the vat can hold is not a priority.
Today farmers need to think about making big changes to their business. Chiefly this will be reducing direct costs of production. And because a great thing about farming is that all direct costs are very elastic, changing a few important metrics can affect marginal returns greatly.
In the past farmers had to make 'gut' calls when changing their business systems. But with the advent of the cloud and modelling software they can take charge of their own financial future. Software systems today enable farmers to put in their own data and rationally draw a conclusion from viable alternatives.
This is called financial modelling. In an uncertain environment it gives farmers comfort that a dramatic change to their business financially could be a step in the right direction. The effect of any change can be calculated on the bottom line, which creates more certainty than would otherwise be achievable.
It can be greatly rewarding to sit in the office and play around with 'what if' scenarios. This empowers dairy farmers and reduces the stress caused by the uncontrollable -- The Price of Milk.
The approach to solving a big problem is to break it down into little problems. Right now, all the little things with a dollar sign next to them are important. That doesn't mean you need to swing to not spending money at all. All that does is create fear and uncertainty and restrict your business. However, if you look after your cashflow then profit will look after itself.
Dairy farmers have a myriad options to consider and/or advice from external parties. No set recipe works for all farms. But farmers are extremely good at navigating their way through options if they can look at their effects on their bottom line. Financial modelling makes that happen.
Farmers have nothing to lose in taking financial stock of their business. And if, after looking at all the different options, they are still unsure they can always get external advice. A problem shared in this industry is a problem solved.
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