12 financial management rules for dairy farmers

Consultant Allan Penderis of Tammac Consultants says that while he can’t provide specific advice because he has not personally visited Nofisa Farm, Tammac’s 12 general rules are of value to all dairy farmers.

12 financial management rules for dairy farmers
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  1. You are farming for profit; not to see how little money you can spend, but how much money you can make.
  2. Measure your profit in rands. Use rands/cash-in-hand or cents/litre or rands/ ha when comparing your performance with that of other farms. Compare carefully; don’t let the measurement units lead you astray.
  3. Profit has two legs, income and expenses, which must be in balance to realise a profit. Ruthless, unbalanced cost cutting will lead to a drop in income which leads to lower profit. Focusing on income (production) only generally leads to excessive expenditure and lower profit.
  4. Compare your financial results with a group of similar farms; identify areas where your numbers are out of line, either too low or too high. Investigate the reasons and implement corrective action.
  5. Money must be allocated to ensure the long-term viability of the operation.
  6. Debt can cripple the most efficient operation.
  7. Spend money on capital items based on profit not on turnover.
  8. Investigate and question ‘must-have’ as opposed to ‘used-to-having’ items.
  9. Draw up accurate, considered budgets at least twice a year. Discuss them with your bank manager and keep him/her informed of unexpected costs. Remediate discrepancies between actuals and budget. 
  10. Keep your books yourself so that you know the finances of your operation. Your accountant generally tries to keep the tax man happy, you need to manage daily farm finances. 
  11. Money wisely spent on herd genetics, water supply and fertiliser is money well spent.
  12. Management time is your most limiting resource. 

You cannot manage your farm effectively if you spend all your time in front of a computer screen or underneath a tractor. Make sure that you do what requires your input and, if necessary, farm out work that detracts from your efficient management of the farm.

Small-scale to commercial farming

For more information contact Tammac Consultants on 039 834 1405 or email [email protected]

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