3 Crucial Reasons Why Farmers Need a Cash Flow Statement
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14 Mar 2024
March is a critical pre-planting period. At this time of the year, expenses for fertilizers, seeds, and labor surge.
Quite often, the income earned out of the previous year’s harvest doesn’t survive until later. Combined with the upfront costs, there can be a major cash crunch. If farmers have a cash flow statement in place for March, it will help them this way:
While March doesn’t offer benefits directly, the end-of-season sales on agricultural equipment, discounted off-season purchases, and government programs can pose you an opportunity — provided you have a cash flow statement.
Here’s why you must make the statement when it comes to investing in land and major assets.
3 Crucial Reasons Why Farmers Need a Cash Flow Statement
Farming is a unique business. Why? The agriculture and farming industry depends greatly upon the shift in seasons, market volatility, and unpredictable weather. When you hire a special accounting services provider, they’ll recommend one thing for sure– create a cash flow statement. Thus, it is not an option to get a cash flow statement of your business– it's necessary for survival of your farming operations too!What is a cash flow statement?
A cash flow statement, as the name suggests is a report informing how the cash has moved in and out of the business for a particular period. It records the cash activity of a business, where the focus is on finding out where the cash is going, and where is it coming from. One shouldn’t confuse it with an income statement, which reflects the revenue and expenses of a business, and the exchange of cash isn’t the focus. Rather, the cash flow statement deals solely with the actual cash transactions. Why is it necessary to make cash flow statements? It's a crucial tool to understand liquidity of your business - whether it can meet short-term financial obligations or not! Besides, understanding what cash flow is, and how it works for your business is a necessary business management skill. Not only do you gain insights on money, but also be agile enough to grab new opportunities, when they come up. Here are three key reasons why getting a CPA in Surrey for cash flow statement becomes particularly insightful in March:Spring Funding Gap – The struggle is real!
March is a critical pre-planting period. At this time of the year, expenses for fertilizers, seeds, and labor surge.
Quite often, the income earned out of the previous year’s harvest doesn’t survive until later. Combined with the upfront costs, there can be a major cash crunch. If farmers have a cash flow statement in place for March, it will help them this way:
- Detect shortfalls early: By accurately anticipating expenses and income streams, farmers can proactively secure loans, negotiate payment terms, or adjust planting plans to avoid cash flow emergencies.
- Set priorities for different transactions: Understanding cash availability allows for informed decisions on which crops to prioritize, what inputs to purchase, and whether to delay investments until later in the season.
- Secure better loan terms: With a clear financial picture, farmers can approach lenders with confidence, demonstrating their understanding of cash flow needs and ability to repay debt.
New Market Opportunities – How to capitalize?
Pre-planting demand and weather changes make March a significantly volatile month for commodity prices. If farmers prepare a cash flow statement, it will assist them in capitalizing on the following opportunities:- Plan strategic grain sales: By understanding upcoming expenses and cash needs, farmers can time their sales to leverage favorable market conditions, potentially reducing reliance on debt and maximizing profits.
- Identify price lock-in opportunities: With a clear cash flow forecast, farmers can assess if locking in specific prices ahead of planting makes sense, mitigating risk and ensuring sufficient funds for essential expenses.
- Negotiate better input prices: Knowing their financial standing allows farmers to negotiate more effectively with input suppliers, potentially securing discounts or extended payment terms based on their proven cash flow management.
Optimize Investments for Maximum Impact.
While March doesn’t offer benefits directly, the end-of-season sales on agricultural equipment, discounted off-season purchases, and government programs can pose you an opportunity — provided you have a cash flow statement.
Here’s why you must make the statement when it comes to investing in land and major assets.
- Evaluating affordability: Understanding future cash flow allows farmers to make informed investment decisions, ensuring they won't strain their finances or jeopardize essential operations.
- Selecting suitable financing options: With a clear cash flow picture, farmers can choose between different loan options, considering interest rates, repayment terms, and their impact on future cash flow.
- Maximizing return on investment: By analyzing cash flow projections, farmers can assess which investments will generate the quickest and highest returns, aligning their spending with overall financial goals.
