Business Forecasting and Cashflow Management

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Business Forecasting and Cashflow Management

• Steve Lindsay
• National Project Manager
• Fresh Start

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Business Forecasting

• Business Forecasting is rather like creating a
  map of where your trying to go and what financial
  steps are to get you there.
• You will often hear that Farming is a lifestyle
  choice.
• However on farms where the farmer needs the land
  to earn a living, he or she MUST be s businessman
  as well as a farmer
• Farming will be very different financially for
  the next generation to how it has been for the
  current one.
• Farmers currently operate in a world of low
  commodity prices and high imput costs

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Business Forecasting

• There are two main tools that you will use in
  forecasting
• -- Profitability Budget
• -- Monthly Cashflow forecast
• The Profitability Budget assesses the overall
  profitablity of a proposed enterprise and
  therefore what level of costs can be incurred
• The Monthly Cashflow forecast attempts to predict
  the effect on the farms bank balance over the year

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Why Manage Cashflow ?

• In any business the availability of cash when
  required is critical
• Businesses fail because they run out of available
  cash, not necessarily because of profitability
  problems
• MUST KNOW AT ALL POINTS IN TIME -
• - How much cash does the farm /enterprise have
  available
• - What is the level of unpaid bills and when are
  they due
• - What cash is the farm / enterprise owed and
  when will it be recieved

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Why Manage Cashflow ?

• In farming, cashflow management can be
  particularly difficult due to the length of time
  between investment and realising a return
• Some sectors are easier to manage than others
• Dairy Farming benefits from a Monthly milk cheque
  that is generally received 30 days after the
  month in which the milk is produced
• Other Livestock and Arable Farmers however have a
  much longer period of time between incurring the
  production costs and seeing the sale proceeds
  come into the bank

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Why Manage Cashflow?Sheep Farm

• Rams put in summer / early autumn 2005
• Lambing from late December 2005 to late April
  2006
• Sale of early lambs commence in April 2006 and
  lamb sales finish in September 2006

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Why Manage Cashflow ?Arable Farm

• Autumn 2005 - Winter cereals drilled. Cash is
  therefore spent on seed, fertiliser and
  cultivation costs ( cash-out)
• Autumn 2005 to early Summer 2006 - various
  operations including spraying, fertilising ( more
  cash out)
• Summer 2006 - Harvest costs ( more cash out ! )
• Summer 2006 to Spring 2007 - Crop sold ( Cash In
  ! )

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Business Forecasting and Cashflow Management -
Points to take away

• If profitability is dependent on receipt of the
  Single Farm Payment - critical to establish - how
  much and when it will be received
• There are other expenses to be paid out of the
  budget before a cash surplus / deficit can be
  established ( Drawings / TAX / costs of Capital
  Investment )
• If you have spare capacity in your machinery -
  why not contract to generate additional cashflow
• Over the full season the enterprises may be
  profitable, but there will be significant level
  of working capital to find

Tax!
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10 Tips to keep your business financially on
track

• 1. Prepare a Business Plan
• 2. Prepare a Realistic Profitablity Budget for
  each enterprise
• 3. Prepare a monthly cashflow forecast for a
  full 12 months
• 4. MONITOR ALL 3 !
• 5. Keep you Accounting records up to date
• 6. Use professionals - Bank Manager / Accountant
  / Solicitor that understand and specialise in
  Agriculture
• 7. Communicate with them all - They don,t like
  surprises!

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• 10 Tips to keep your business financially on
  track
• 8. Be flexible - ensuring that you have an open
  mind and can make changes as and when they are
  required
• 9. Think Act as a Businessman / woman at all
  times.
• 10. Be Positive - Businessmen are generally
  passionate about their Business !!
• Lastly enjoy your self / Have some fun !!!!