Tips for managing cashflow through 2020

There will be practical challenges in operating a farm business through the rest of this calendar year. Logistics and supply chains are likely to experience disruptions, through restrictions on operations and surges in demand, such as we saw impacting supermarkets through March.

In 2020 planning will be more valuable than ever to farm businesses.  It will be good practice to allow additional lead times for critical tasks and planning to be conducted early. Detailed operational plans will be invaluable to managing disruptions and making the adjustments needed to keep operations running on time. Cashflow planning will support adaptive and flexible management decisions, including the timing adjustment of sales and input acquisition well in advance.

To manage cashflow through 2020 the best planning will be a farm budget. Prepare a budget – this is the cashflow plan. Monitor the income and spend against budget and adjust as the year progresses Adjust the budget as commodity prices fluctuate Plan cash reserves early in case the year takes an unexpected turn. Capital expenditure and machinery replacement can be factored in.

Farm managers monitoring their cashflow.

Why banks like budgets…

As we move through 2020 it is likely that the demand on the banks to assist with cashflow pressures will increase significantly. Agriculture has not been as heavily impacted as other sectors of the economy. However a substantial increase in demand for banking services will impact how they reallocate their resources. This could mean a considerable increase in their lead time to process lending applications.

Banks like budgets because they tell the story of your farm in their language. Agronomy reports are the language of Agronomists and budgets are the language of bankers. A well-prepared budget will inform a bank about everything they want to understand about your farm, when processing a loan application. Banks will not have time to collate your data and interpret verbal instructions, you will need to present applications that are, well prepared and detailed.

Financial statements prepared by your accountant tell part of this story but not all. They tell us about the past and budgets talk about the future. Bankers have a saying that “using financial statements to lend money is like driving a car looking through the rear-view mirror”.

If you need additional cashflow relief throughout 2020 it will pay dividends to be well planned. Ensure your 2019 Tax returns are finalised and set a budget for the next 12 months. If you would like further information on budgeting, or assistance with budgeting for your farm please contact ORM. Contact Us