Managing cash flow for your rural business

Jane Mitchell

Jane Mitchell

Business Advisory Director & Rural Specialist

28 August 2022

This article first appeared in Farm North East.

Post-fertiliser payments, cattle all purchased, dealing with increasing overhead costs - for traditional agribusinesses, sometimes the cash flow can appear to all be going out with not much coming in.

Despite these cash flow pressures, commodity prices are still holding fairly firm and profitability is still forecast for the foreseeable future in many traditional farming businesses. However, profitability doesn’t pay the bills - cash flow does. Cash flow is at the heart of every business – and particularly where costs continue to increase not only for the rural sector, but all businesses, keeping firm control over your finances is vital.

Demonstrating effective cash flow management is also crucial if you are aiming to secure additional funding for your business. The additional funding could either be for a new investment or simply to get you through to the start of that period when commodity payments come in whilst paying the monthly bills. Whether you are planning to leverage additional funding or simply wish to manage your existing cash more effectively, we’ve shared our three cash flow top tips for your agribusiness:

Identify all sources of income and expenditure

A good starting point is logging all your sources of income and your outgoings. Referring to invoices, receipts and reviewing bank statements is useful way to ensure you’ve covered everything. If your business has annual seasonality, recording these income and expenditure amounts for the last 12 months is the foundation of this year’s cash flow.

It’s also good to think about any new items that you have income from or any new costs that you have committed to this year. You will need to apply inflationary increases to most of your overheads - costs such as your energy and fuel will have at least doubled from last year so ensure you log all these figures. Using an Excel spreadsheet can be a useful tool for recording your anticipated income and expenditure for the year ahead. Whilst identifying all your sources of income and expenditure will involve some effort, it’s a good discipline and by the end you’ll certainly know your cash flow much better than you did at the start of the exercise!

Review your finances on a monthly basis

The effort that you put into developing the cash flow above becomes all the more meaningful at stage two.

Set aside time each month to review your income and expenditure. If you’ve identified all your planned income and expenditure on an Excel template, run an ‘actual’ column alongside your budgeted numbers. This should give you an accurate picture of your business’s current account balance month-to-month. It will also quickly identify any need for additional funding. By reviewing your finances on a monthly basis you can establish seasonality patterns in your cash flow, and this can help you to identify when any planned expenditure should be deferred to another month.

Continue to revisit your cash flow

A cash flow forecast is only beneficial for you and your farm if it’s accurate and reflective of day-to-day challenges.

By reviewing your figures regularly to monitor actual income and costs against those originally budgeted, you’ll have a much better insight into your business’ cash flow. If you are borrowing money, rising interest rates and the consequence of increased interest payments are now starting to become a real cost to many businesses and one that should not be overlooked. Are you using your cash flow to its maximum efficiency? Continuing to revisit your cash flow will help plan future investment and you’ll know much sooner if an issue is looming.

What happens when I have a cash flow issue?

Our advice is always to seek help as soon as you notice a cash flow issue arising and, if possible, before it turns into something more serious. Monitoring your cash flow regularly will allow you to proactively identify issues so that you can form a plan of action to remedy them; either through your own business resources or by seeking assistance from your advisers. 

How we can help

A large proportion of our business advisers come from an agricultural background. As well as the technical expertise, industry insight and first-hand experience of managing an agribusiness, we can advise on whether you may need to restructure your business to meet your costs, or sourcing additional finance

To find out more about managing your cash flow and how we work with agribusinesses, get in touch with a member of our Rural team.

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