Planning – Where Do I Start?

Planning - Where do I start?

If you’ve ever stared at a stack of invoices, bank statements, and Fonterra Statements feeling completely overwhelmed about where to begin with financial planning, you’re not alone. Most dairy farmers know they should have a financial plan, but the reality is that many of us simply don’t know where to start—and that’s perfectly okay.

Financial planning doesn’t have to be complicated, and you don’t need an accounting degree to get started. The truth is, successful financial planning for your dairy operation begins with understanding where you are right now and taking one manageable step at a time. This guide will break down the process into practical, actionable steps that you can implement immediately, regardless of whether you’re running a 150-cow operation or 1000 cow operation.

Why financial planning feels so overwhelming

Let’s be honest—dairy farming comes with unique financial challenges that make planning feel particularly daunting. Milk prices fluctuate unpredictably, seasonal cash flow creates feast-or-famine cycles, and the capital-intensive nature of dairy operations means every financial decision feels high-stakes. Add in the daily demands of animal health, pasture management, and equipment maintenance, and it’s no wonder that sitting down with spreadsheets falls to the bottom of the priority list.

Many farmers also feel intimidated by financial jargon or worry they don’t have enough formal training to create a “proper” plan. Here’s the reality: the best financial plan is the one you actually use, not the most sophisticated one sitting in a drawer. Your lived experience managing cash flow through dry seasons, navigating feed price spikes, and timing major purchases already demonstrates financial planning skills—you just need to formalize and expand on what you’re already doing.

Start where you are: Building your financial foundation

The most important step in financial planning is understanding your current financial position. Think of this as taking a financial “health check” of your operation before making any major decisions.

Begin with where you are today. Write down the values of what you own, and what you owe this will give you what you are worth. This isn’t about judgment; it’s about establishing your starting point.

Document your goals. There’s something almost magical that happens when you move a goal from your mind onto paper. What starts as a vague notion floating around your thoughts suddenly becomes concrete and actionable when you write it down. This transformation is particularly powerful for dairy farmers, where the demands of daily operations can easily overshadow longer-term planning.

Create a simple monthly cash flow snapshot. Take your average monthly milk income and subtract your regular monthly expenses. This basic calculation shows whether you’re typically cash flow positive or negative each month. If you’re consistently negative, don’t panic—this exercise helps you understand the scope of changes needed. If you’re positive, you can focus on optimizing and planning for growth.

Take a step-by-step approach to dairy financial planning

Step 1: Set clear, specific financial goals

Effective financial planning starts with knowing what you want to achieve. Avoid vague goals like “be more profitable” and instead set specific, measurable targets. Examples might include: “Increase annual profit by $25,000,” “Build a $50,000 emergency fund within 18 months,” or “Save $100,000 toward new milking equipment by 2026.”

Consider both short-term goals (6-12 months) and longer-term objectives (2-5 years). Short-term goals might focus on improving cash flow or paying down high-interest debt, while longer-term goals could include facility upgrades, land purchases, or succession planning.

Step 2: Master your cash flow timing

Cash flow management is the heartbeat of dairy financial planning. Unlike many businesses, dairy operations face significant seasonal variations in income and expenses. Summer months might bring higher milk production but also increased feed costs, while winter could mean lower production but reduced feed expenses.

Create a simple 12-month cash flow projection using historical data. List expected monthly income from milk sales, livestock sales, and any other revenue sources. Then project monthly expenses including feed, labour, veterinary costs, loan payments, and family living expenses. This exercise reveals your cash flow patterns and helps identify months when you’ll need additional working capital or can accelerate debt payments.

For example, if your analysis shows consistent cash shortfalls in March and April, you can plan ahead by building reserves during stronger months or arranging seasonal credit lines.

Step 3: Build your emergency buffer

Every dairy operation needs an emergency fund, but the amount depends on your specific situation. A good starting target is three to six months of operating expenses, but you might need more if you’re in a volatile market or less if you have reliable off-farm income.

Calculate your monthly fixed costs—loan payments, insurance, utilities, and minimum family living expenses. Multiply this by three to establish your initial emergency fund target. This fund protects you from unexpected veterinary bills, equipment breakdowns, or market downturns without forcing you into high-interest debt.

Step 4: Plan for capital investments strategically

Dairy farming requires significant capital investments, but timing these purchases strategically can dramatically impact your financial success. Create a capital expenditure plan that prioritizes investments based on their expected return and your cash flow capacity.

List needed equipment, facility improvements, or livestock purchases over the next three years. Estimate costs and potential financing requirements. Then evaluate each investment’s expected impact on profitability, efficiency, or risk reduction. This systematic approach prevents emotional purchasing decisions and ensures capital investments align with your financial goals.

For instance, upgrading milking equipment might improve efficiency and reduce labour costs, while improving feed storage facilities could reduce feed waste and improve feed quality. Quantify these benefits to make informed investment decisions.

Step 5: Manage financial risks proactively

Risk management is financial planning’s insurance policy. Identify the biggest financial risks facing your operation—milk price volatility, feed cost spikes, equipment breakdowns, or weather-related challenges. Then develop specific strategies to mitigate each risk.

This might include participating in milk price risk management programs, contracting feed purchases during favourable pricing periods, maintaining comprehensive insurance coverage, or diversifying income sources. The key is having a plan before you need it.

Practical tools and resources for dairy financial planning

Start with simple tools that you’ll actually use. A basic spreadsheet can be more effective, but at CMK we use Figured, a dedicated and robust software program that will help you produce cashflows and regularly monitor your business on an ongoing basis.

Work with professionals when complexity exceeds your comfort level. Having a relationship with a farm-focused accountant, financial advisor, or business consultant can provide valuable guidance for major decisions.

Addressing dairy-specific financial challenges

Milk price volatility requires building flexibility into your financial plans. Consider using risk management tools like Figured’s Milk Price Protection Tool or forward contracting when available. Build your cash flow projections using conservative milk price assumptions, treating higher prices as opportunities to accelerate debt reduction or build reserves.

Seasonal cash flow variations are manageable with proper planning. Use your cash flow projections to identify seasonal financing needs and establish credit lines during strong financial periods when qualification is easier. Many farmers benefit from seasonal operating loans that align repayment schedules with cash flow patterns.

Capital intensity requires careful investment planning and creative financing strategies. Consider leasing options for some equipment, exploring used equipment markets, or timing purchases to coincide with strong cash flow periods or favourable financing terms.

Your actionable next steps

This week: Gather your thoughts and documents contact your advisor and ask them about how they can help you plan for the future.

This month: Create a basic 12-month cash flow projection using simple estimates. Identify your three biggest financial risks and brainstorm one strategy for managing each.

3 – 6 Months: Develop a plan for the next two – thirty years that is tailored to you and your farming journey.

Remember, perfect is the enemy of good when it comes to financial planning. Your first plan doesn’t need to be sophisticated, or set in stone —it just needs to exist and be something you can build upon. Start with these basic steps, gain confidence through experience, and gradually expand your planning as your comfort level grows.

Moving forward with confidence

Financial planning for your dairy operation is not about predicting the future perfectly—it’s about making informed decisions with the information you have and adapting as

circumstances change. Every successful dairy farmer started somewhere, and many began exactly where you are now: knowing they needed a plan but unsure how to begin.

The key is starting today with whatever tools and knowledge you have available. Your financial plan will evolve and improve over time, but the most important step is the first one. By taking control of your financial planning, you’re investing in the long-term success and sustainability of your dairy operation and your family’s future.

Your dairy operation deserves the same careful attention you give to animal husbandry and pasture management. Start small, be consistent, and remember that every step forward builds toward greater financial confidence and success.

Remember that seeking help is a sign of strength, not weakness. If you reach a point where you have exceeded your comfort level, connecting with farm-focused financial professionals can accelerate your progress significantly. CMK Accountants specialises in working with dairy farmers and understands the seasonal nature of dairy cash flow, the capital requirements of your operation, and the unique risk factors you face.