End of season financial review
As spring block herds come to their year end, it’s time to think about planning finances for next year.
Where businesses have made a profit, the usual step is to follow the accountant’s advice and spend surplus cash to avoid paying tax.
However, at the end of lactation when the milk cheque dries up or milk income is very low, it can lead to a serious dip in finances, warns LIC consultant Sean Chubb. “For instance, buying a new tractor or a load of fence posts to reduce tax could put more pressure on your bank balance when the tax is finally due because of the purchases and any finance payments resulting from them,” he explains.
“It’s important to work out what you need to get you through that big dip and have your overdraft as a safety net. At the end of the season, you roughly know whether you are in profit or loss; but you need a pot of money to keep carrying over each year, so that you don’t end up at the bottom of your safety net i.e. hit your overdraft limit.”
The goal is, that if things do go awry, there is still enough money in the business without having to go cap in hand to the bank to ask for more help. This is particularly true for spring calving herds that have a high winter cost period which coincides with limited, or no income.
Sean suggests that it’s also good time to review the yearly spend and work out where you got the most benefit: “Did you get the most out of spend on feed or health costs? Remember that if you review five years of accounts you can see the trends in price spikes. They come down as you tackle them, but by reviewing prices annually you can keep such spikes to a minimum,” he says.