The new year is a good time to review your marketing plans and cash flow projections, says a provincial farm financial specialist.
“Cash is the lifeblood of a business, but with so much emphasis usually put on profitability, it can be easy to overlook this fact,” said Rick Dehod. “Poor cash flow management can drive a growing and/or profitable company out of business. In the previous five years, we have seen a lot of farm families choose to expand and grow their farms. This has been through the investment of their equity and retained earnings, but also with debt.”
With margins squeezed by falling commodity prices and rising costs, new farms and leveraged operations are most at risk, he said.
“You don’t have to wait for a crisis to benefit from good cash flow planning. A properly developed cash flow projection can help a business foresee and prepare for potential shortages.”
Along with being able to pay bills on time, a cash flow plan can reduce interest costs through managed borrowing; increase interest income by transferring surplus funds into interest-bearing accounts temporarily; and lower costs by being able to buy inputs at favourable prices.
Reviewing last year’s performance will help you prepare for the coming year.
“Now that you know your yields, you might gain a better understanding of your cost of production so you can determine what a profitable price may be,” said Dehod. “With the winter extension season approaching, it may be a good time to gain more information on using the futures markets. It may also be a good time to seek assistance from your accountant or your mentor to fine-tune your operating plans. Cash flow management is part of farm business management, and the ultimate stress test of your farming operation.”
Alberta Agriculture has an Excel spreadsheet to project cash inflows and outflows for the coming year. Go to www.agriculture.alberta.ca and search for ‘cash flow analyzer.’