‘Liquidity planning gives us peace of mind and insight. You know exactly whether you can make certain investments, or whether you have to postpone them for a year. Milk producer Leo de Jong has been working on liquidity planning, also known as cash planning, liquidity forecast or liquidity budget, for almost thirteen years.
Together with his wife Artje and daughter Linda, De Jong has a dairy cattle with 180 cows in Beusichem, Gelderland. “Precisely because we are on a ship with several captains, a cash schedule provides clarity. For example, we want to replace the rubber top layer on the barn floor. There is now room for that investment. We see that in our overview. ‘
Each year, the family reviews the figures with a consultant from PPP-Agro Advies. In addition to a liquidity forecast, the family is also working on a ten-year plan. “We’re looking at whether we need to fine-tune things. The dairy sector is facing a turbulent period that may be accompanied by significant investment. But financially, we know exactly where we stand and how much financing space there is.
Do not invest now in luxury machines that do not provide a return
According to the milk producer, the preparation of these annual accounts costs money. ‘You lose a few hundred euros a year, but it’s nothing per kilo of milk.’
To rule is to look into the future
With a liquidity forecast, you make an overview in advance of all expected income and expenses for a month or a year. To govern is to look ahead, says Karin Schukkink-Olink, business specialist at Countus Revisorer og Rådgivere. ‘By visualizing any financially difficult periods in advance, you can switch well in advance.’
Schukkink-Olink would advise any young entrepreneur to make an annual forecast. ‘You get a lot of insight into your business in a simple way and you grow in entrepreneurship.’
Stable milk and feed prices
Such a budget is not a fixed price for milk producers. They have traditionally been used for stable milk and feed prices. ‘You already knew at the beginning of the year in black and white what the result would be at the end of the year,’ says Hans de Bie, Food and Agri marketing manager at Alfa Accountants and Adviseurs.
The situation is different for pig and poultry farmers or greenhouse farmers, who are constantly facing fluctuating sales prices. “If an egg gives 1 cent less, it makes a big difference to the total,” De Bie says.
Because milk producers are increasingly dealing with fluctuating prices, the marketing manager expects such greenhouse planning to become important to them as well.
High milk price
The milk price is now sky high. Is liquidity planning not superfluous? “No,” says De Bie. Although your current account is quite spacious now, a common mistake is to make investments from it without knowing if there will be enough space in the current account for the operation of the company afterwards.
‘Then you fill up your credit space all at once. If you do not have a clear budget, you may get stuck at a later date and you will have to knock on the door of your bank to get extra financing. ‘
The other way around
Farmers with a liquidity plan approach it differently. They include the expected replacement investments in the budget for the coming year, which gives an overall picture of the liquidity development. ‘If the credit limit is not sufficient, you will talk to your bank. So you approach it the other way around so you are not greeted by surprises. I always say: the added value of a prognosis is that you sleep well ‘, says De Bie.
Less than 10 percent of milk producers work with liquidity planning, estimates Marijn Dekkers, head of livestock farming at Rabobank. ‘This percentage does not increase quickly, while knowing your numbers makes you a better leader. We think it is important that entrepreneurs know the financial flows of their business, that they have knowledge of the business. ‘
In the event of an increase in the tax burden and additional costs of these milk producers immediately, what impact does this have on their business. ‘It gives peace of mind when you know the strengths of your business,’ emphasizes Dekkers.
In the current economic boom, according to the livestock sector manager, it is smart to build up a buffer: 5 øre per. kilo of milk per year is the rule of thumb that Rabobank uses. ‘History teaches us that good years alternate with bad times. Although there are no signs yet that the market is changing. ‘
Klaas de Jong, consultant at the consulting firm PPP-Agro Advies, also considers a buffer important. “Then you can absorb blows for a few years without having to go directly to the bank. There is going to be a lot going on in livestock farming and one does not know what is going to happen. Do not invest now in luxury machines that do not provide a return.
Pay attention to money
According to De Jong, a liquidity forecast is helping to improve the financial result. Farmers are more aware of money and make more economically driven decisions, he believes. ‘It’s also positive for your relationship with the bank. For example, always ask if there is still an interest discount. In addition, a financial plan gives you the feeling that you are in control. ‘
The adviser adds that you also have more insight into planning (replacement) investments in combination with tax planning, so you should pay as little tax as possible.
‘If you fly out of a corner, you can intervene quickly’
In greenhouse horticulture, making liquidity forecasts is the most natural thing in the world. ‘They make you sharp, and cost is an important part of your business. It is important to have control over this, “says co-owner Sander Verbeek from potted plant nursery SV.CO.
Verbeek works on a monthly budget. ‘You can see it right away when you fly out of a corner somewhere, so you can make adjustments in the short term. If you only have one annual plan, you cannot intervene afterwards’.
The high energy costs are also budgeted in liquidity planning. But in reality, this post is lower, so it’s a ‘windfall’. Verbeek: ‘It gives you some money for other costs. For example, we see that transport has become somewhat more expensive and that the trays for the plants are more expensive. ‘ He also likes to know with an overview how large the investment volume is.
Jelle Jolink is a young milk producer from Drempt in Gelderland and is in partnership with her parents and brother. They milk 120 cows on 80 hectares of land. Several times a year, they consider their liquidity budget. ‘That way you can see in which months you have the biggest expenses. For us, it is especially at the end of the year. Then we usually receive the bills for the maize harvest, lawn mowing, land lease, maize purchase and disposal. ‘
To avoid excessive pressure on the balance of payments during those months, milk producers consult with suppliers and other companies to send the invoices more staggered. ‘It’s more comfortable for all parties.’