Posted January 2, 2024 | By: Liz Schmidt    

As farmers, we know that forecasts aren't always 100% accurate. Whether it's the weather, pests or yield projections, there's always some uncertainty. The same goes for cash flow - the movement of money in and out of your farm. While it's impossible to predict your cash flow with complete accuracy, it's still important to have a solid financial plan in place. Think of it like checking the weather forecast - it's not a guarantee, but it helps you prepare for what's ahead. Here are some considerations to help you monitor your cash flow situation.

First things first: know your numbers. Take a hard look at how much money is coming in and going out each month. Expenses can drastically vary from month to month, so it's important to have some financial flexibility when you might have a cash crunch. Take some time to review your past performance and make projections for the future. This will help you set targets for breaking even and turning a desired profit.

Creating a cash flow budget can be a helpful tool. This will show you the money coming in (from sales and other sources) versus the money going out (for things like labour, rent, equipment, and taxes). Don't forget to include other expenses, like paying yourself or covering non-farm costs. And remember, your budget is a living document - it should be updated regularly to reflect changes in your operation.

Speaking of changes, it's important to re-evaluate your cash flow regularly. Depending on the size of your farm, you may want to do this quarterly or even more often. It can be tough to find the time, but keeping an eye on your cash flow is crucial for staying profitable. And if something big happens - like trying a new crop or making a major investment - be sure to update your projections accordingly.

Of course, not every month is created equal when it comes to cash flow. Some months might be more expensive (like when you're buying seed and other inputs), while others might see more money coming in (like during harvest). By paying attention to these ebbs and flows, you can plan ahead and make the most of any surpluses.

But what if you find yourself short on cash? That's where planning ahead can really pay off. If you know you're going to be tight on funds, consider financing some of your purchases. Many retailers, such as Nutrien Ag Solutions, offers financing. An added benefit of working with an agricultural lender is that they also understand the importance of flexible payment terms and due dates that align with your crop marketing plans. This can also help you balance your capital management strategies and take advantage of any promotional discounts that might be offered.

In summary, managing your cash flow is all about knowing your numbers, making a plan, and being prepared to adapt. Monitoring your cash flow can help you stay on top of any budget gaps and weather any financial storms that come your way.

For more detailed information on cash flow planning and a better understanding between a cash flow budget versus a cash flow statement versus your burn rate, download our white paper from NutrienFinancial.ca.