VIEWS: 2 PAGES: 38 CATEGORY: Business POSTED ON: 4/26/2010
Microsoft PowerPoint - TIGHT MANAGEMEN FOR TOUGH TIMES - CAMERON ...
TIGHT MANAGEMENT FOR TOUGH TIMES Financial and Business Management Cameron Smith, Farmanco Pty Ltd Strathallan, Victoria Why Plan? • Fear of the unknown is almost always worse than the outcome. • Options that are available today may disappear tomorrow. • Not only do you have to convince yourself, you need to be able to communicate with family, staff, lenders and creditors. Where to from here? What decisions need to be made? • How do we manage cash flow? • Will we need to borrow more? • Can we borrow more? • Are we willing to borrow more? • Do we milk more or less cows? • Do we feed more or less? • What about the future? There are no UNIVERSAL ANSWERS • Every farm will be different. • There are processes that can be followed that will help to provide answers. • Many questions are difficult and complex. Don’t be afraid to ask for help as you ‘bounce ideas’ around. The Process 1. Establish the facts. a. Balance sheet. b. Cash flow. c. Reserves of energy. 2. Look for options. 3. Make decisions. 4. Act. Listing points 1 to 4 may seem to imply that this is a linear process, IT ISN’T. The Process Estimate Get an income production estimation NO Estimate operating Look for costs plan B, C, D… Is the plan Look at cash flow possible? * peak debt * working capital YES What needs to be done? Estimate Production Estimate Income Estimate Operating Costs Cash Flow Budget Production Costs 1. Herd Costs 2. Shed Costs 3. Feed Costs 4. Overhead Costs - Labour • Production Costs can only be trimmed to a certain extent • Trimming production costs may have an impact on future income • This impact may occur in the short term or may occur in the longer term Herd Costs • My average client spent $121/cow on herd costs last year. • My two most frugal clients spent $40/cow and $41/cow • My two most frivolous clients spent $220/cow and $223/cow Feed Costs • Expenditure on feed costs is where the rubber hits the road in terms of production costs. • Other speakers will discuss feeding regimes and fertiliser use in more detail later • My take home message is to seriously justify every item of expenditure in this area Overhead Costs - Labour • Expenditure on labour for 2009/10 does need to be considered • Will reducing labour costs impact on the ability of the business to perform at the proposed level? Production Costs • Despite the best efforts in trimming production costs with the aim of producing the largest operating surplus possible, at opening prices many farm businesses are facing an overall cash deficit • We need to look at the other costs associated with running the business Costs other than Production Costs • Overhead Costs • Capital Costs • Finance Costs – Principal – Interest • Personal Costs Overhead Costs • In tight years expenditure on Repairs and Maintenance needs to be tightened up. • What hidden costs are included in your results that relate to Administration? Capital Costs • For me this is the no-brainer, we cut everything that can be possibly cut, unless there is a pay back in less than 12 months – An example in my area is expenditure that may reduce the wastage of purchased feeds. – Spending $12,000 to save $30,000 on wastage is justifiable Finance Costs • Where are your finance costs sitting – At <20% of farm income most businesses can operate comfortably – Finance costs of 25% are a bit of a concern – Finance costs at >25% and certainly above 30% need some immediate attention Finance Costs • It makes no sense to me to be repaying principal in a year of low or no profits • Under these circumstances we are paying off one debt (the farm loan) and funding it with another debt (the overdraft) • Talk to your lending institution about your options Personal Costs • This is an area that no advisor should dare to discuss without having a thick skin. Balance sheet what you own and what you owe 1. Realistic market values for: a. Land, water, improvements. b. Stock and plant. 2. Debt: a. Mortgages, overdraft, other loans b. HP’s, CM’s and leases c. Factory advances d. Creditors, contracts Balance sheet • While there are no general rules I will put down some general rules. If equity is -: – <30% then the business is in somewhat of a risky situation – 30% to 40% then your lending institution is likely to continue to support the business at current borrowings – 40% to 50% then your lending institution is likely to support the business and there may be access to additional borrowings – >50% then access to additional borrowings are likely Balance sheet Reserves of Energy • The cash flow might be positive or negative • The balance sheet might be strong or weak • How are – Your energy reserves – Your families energy reserves – Your staffs energy reserves There are Costs and Risks in Changing Farming Systems • Direct cash costs. • The time taken to learn to operate the new system at high efficiency. • Most short-term responses should be about ‘tweaking’ the existing system. Options – Plans B, C, D, ……Z 1. Increase herd size/decrease herd size 2. Cull poor performers. 3. Once-a-day milking. 4. Sell heifers. 5. Buy cheaper feed. 6. Feed less/feed more. 7. Other options?????? Increase/Decrease Herd Size • The marginal cow is the “last” cow in the herd – She is effectively likely to be consuming all purchased feeds The Marginal Cow • Our marginal cow is producing 369 kg MS • Our marginal cow is likely to earn $1,292 of milk income • Our marginal cow is likely to need to eat 4.2 t DM over the year • At $250/t DM our marginal cow is likely to have feed costs of $1,050 • Our MOFC is $242 The Marginal Cow • Our MOFC is $242/cow • Our other production costs include -: – $92/cow of herd costs – $55/cow of shed costs – $190/cow of labour costs • Our MOPC is potentially -$95/cow • Interest on buying the cow? Feed Less? – YES? – NO? • Stale cows • Fresh cows • Poor marginal • Good marginal response to extra response to extra feed feed • Low milk prices • Higher milk prices • High feed costs • Cheap feed available Feed More? – NO? – YES? • Stale cows • Fresh cows • Poor marginal • Good marginal response to extra response to extra feed feed • Low milk prices • Higher milk prices • High feed costs • Cheap feed available Once-a-Day Milking? – YES? – NO? • Stale cows • Fresh cows • Low per cow production • High per cow • Jersey or XB production • Low milk prices • Friesian/Holstein cows • High feed costs • Higher milk prices • Cash labour savings • Cheap feed available • No labour savings More Radical Decisions • Park part of or the whole herd • Sell some assets (stock, equipment, land) • Exit The Future? Taking some words of wisdom from Bill Malcolm - : “ Human nature generally gets it wrong, when its good we think it will get better and when its bad we think it will get worse when in reality the opposite occurs” • Milk price? • Production costs? – Herd costs? – Shed costs? – Feed costs? – Overhead costs? This all looks very complicated. Where can I get help? • Lots of people can provide help (TIAR staff, factory field staff, consultants, rural financial counselors, other farmers, family, etc….) • Any data set (e.g. ‘Taking Stock’ or RedSky) relating to your business is a good starting point. • DairyTas has obtained funding for “Taking Stock” sessions. Summary • ACT EARLY – Gather as much information as you can in relation to your business and the settings for the 2009/10 season • SEEK ADVICE – Factory field staff, TIAR staff, Rural Financial Counselors, accountants, consultant and neighbors can provide information • PLAN – Know what your situation is, where you stand and what your plan of action is • MONITOR – Re-evaluate your situation and make appropriate decisions as required
"Microsoft PowerPoint - TIGHT MANAGEMEN FOR TOUGH TIMES - CAMERON "