Business Forecasting and Cashflow Management

1. Business Forecasting and Cashflow Management Steve Lindsay National Project Manager Fresh Start

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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 ! )

8. 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!

9. 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!

10. 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 !!!!