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A GUIDE TO ENTERING CONTRACT MILKING BY CMK CHARTERED ACCOUNTANTS

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CMK Chartered Accountants have put together this easy to follow guide with everything you will need to know about entering contract milking. From what experience you should have before jumping in, to financial responsibilities and career goals.

Here are 9 key points to consider before contract milking:

#1 - An Introduction to Contract Milking

Contract milking is a significant step for many in the dairy industry, serving as a bridge between being a farm employee and a sharemilker. In this role, a contract milker is paid based on the volume of milk produced rather than receiving a fixed salary, where income is aligned directly with production. 

#2 - Timing and Initial Steps

Before jumping into contract milking, it is crucial to have solid practical experience with dairy farming, including sound knowledge of stock and pasture management. Potential contract milkers should also have basic skills in financial management or be prepared to learn quickly. Evaluating whether you have the required skills, and are ready, is essential. 

#3 - Financial Planning and Management

 

As a contract milker, understanding and managing finances become paramount. This includes negotiating a fair rate per kilogram of milk solids that not only reflects your effort and skill but also covers operational risks. Utilising financial tools and software for budgeting can help manage the financial health of your business effectively, and your accountant can guide you with this.

#4 - Financial Responsibilities

 

Understanding the tax implications of contract milking is crucial. This includes knowing when and how much tax to pay, especially since tax payments might not be immediately required in the first year. Setting aside funds regularly to meet tax obligations can prevent financial stress later on.

#5 - Risks

The role of a contract milker comes with some financial and operational risks. It’s important to understand these risks, including the potential for fluctuating production and operational challenges like livestock health issues, or weather events such as a drought. Developing a contingency plan and maintaining an emergency cash fund are practical steps to safeguard against these risks.

#6 - Getting Expert Advice

The complexity of contract agreements and the financial outcomes involved make it advisable to consult with industry experts. This includes accountants, experienced contract milkers, and legal professionals who can provide insights and advice on drafting and reviewing contract terms to ensure they are fair and supportive of your career goals.

#7 - Building Relationships

 

Successful contract milking often hinges on the relationship with the farm owner. Clear communication and regular engagement with the farm owner are very important for aligning expectations and addressing any concerns as they arise. This partnership should be based on mutual respect and a clear understanding of each party’s roles and responsibilities.

#8 - Aligning with Career Goals

For many, contract milking is not just a job, but a strategic career move within the dairy industry. It’s important to view this role in the context of your broader career goals, such as eventually buying a herd, or owning your own farm. Continuous learning and professional development should be part of your strategy to advance in the industry.

#9 - Final Thoughts

 

Stepping into a contract milking position is both an opportunity and a challenge. With thorough preparation, and a clear understanding of the financial and operational dynamics, contract milkers can set themselves up for success in the dynamic industry of dairy farming. 

Our team at CMK Accountants are here to guide you every step of the way. From understanding your farm’s financial health to optimising tax strategies, we’re dedicated to helping you weather the ups and downs of the dairy industry and build a secure future.

Contact us today.

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