Dairy farmers make sure you take care of your profits
Mike Feneley, Partner with Haines Watts Rural Business talks about the upsurge in profits for Dairy farming businesses and offers sound advice on how farmers can use these effectively over the coming year…
Dairy farming profitability is on an upward path due to better milk prices, better climatic conditions and more attractive costs of production giving great opportunities to the dairy farming community. It is a time where businesses need to plan carefully to ensure they utilise any extra profits effectively for the future. There is no doubt that there will be many suppliers to the dairy industry who will be licking their lips in anticipation of the sales that they can make due to the extra profits being made within the industry. It is vital for any dairy farming business and for any business to ensure that those hard won profits are used efficiently to achieve their objectives.
Mike comments; “Currently there are fabulous opportunities available for dairy businesses. It is an excellent opportunity to drive business forward in a positive way, however, farmers must ensure they plan it effectively so they are not disappointed by the results. Hopefully during the year ahead it will allow dairy farmers to produce some really positive results which can reward them not only financially but also in the sheer pleasure of running an effective dairy farming business.”
Looking ahead to the next twelve months Mike recommends giving thought to the following:
- When you are looking to the next twelve months firstly focus on the basics of running an effective and profitable dairy business, before you start adding extras. For example, make sure that your soil PH is the correct level to make good use of your nutrients before you start buying a special trace element fertiliser. There are many areas of a dairy business where you can get distracted by adding extras first. The most profitable dairy businesses focus on getting the basics right first.
- Make sure whatever investment you are planning enhances the use of the assets you currently have available. The assets you have available include your own likes and dislikes in terms of the type of system you like to run. Remember if a businessman enjoys what they are doing because the system they are operating suits them, then they will always achieve the better results.
- Be careful in your investments to ensure that they do not add extra complexity to your existing farming business. In my experience adding complexity to a business often adds extra cost that doesn’t necessarily create any extra margin. Try to keep things simple and streamlined in whatever farming system you are running to get the best possible results from your efforts. Make sure your investments are fully researched, getting guidance from independent people who have experience in that area.
- Focus your investments on achieving your own business and personal goals. Do not get distracted by investing in your business based on fads and fashions that others may try to sell you.
- When making additional profits if there are not obvious investments you need to make consider building financial strength by either debt repayment or building your credit balances. This may sound a little old fashioned but it is far better to build financial strength in a business than it is to spend on capital investment that may not be appropriate for your farm at that specific time. Remember that investments in a buoyant period are often more expensive. Always make sure your business is financially strong before any potential downturn as there are often better value investments in those periods.
- When you are contemplating your investments for the future work closely with your accountant to ensure that they are purchased in the most tax effective way. Remember to make the decision on a commercial basis first and then get the tax situation sorted after you have made the right commercial decision.
