Plan early when managing spring cash flow
Keeping a sharp eye on cash flow is important year-round, but the importance heightens during the spring.
Lance Stockbrugger is a Saskatchewan farmer and a chartered accountant.
He estimates producers spend about 80% of their budget for the year in a three-to-five-week period at this time of year, adding the importance of sticking to a plan.
“Make sure we have cash in the bank enough to cover off as many inputs as we can, then also have a line of credit as well,” Stockbrugger says.
With approximately 80% of a farm's spending happening in the spring, managing cash flow takes planning.
Jonathan Small, chief research officer of Global Ag Risk Solutions echoes the comment, pointing out a lot of money goes into the ground in a very short time.
Stockbrugger says planning cash flow for this spring started last year.
“We were already starting last fall when we were combining, or even as far back as a year ago," Stockbrugger says. "We are starting to think about the rotation for next year already, just kind of what fields we are going to put in.”
Small says farmers need to have a realistic plan. He adds one common pitfall he sees is farmers using other producers' numbers.
“Don’t use standard costs for things, or what the neighbour says his equipment costs,” Small stresses.
He says when that happens, farmers aren't fully understanding their own costs, which prevents them from foreseeing cash flow problems and identifying solutions.
MNP Business Advisor Glenn Dogterom says a producer’s plan should include an annual review of the balance sheet and income statement, which will help the farm identify cash flow issues long before they happen.
“This isn’t something that all of a sudden happens,” Dogterom says, adding revisiting these numbers annually gives farmers the best options and solutions.
“We don’t have a crystal ball," Stockbrugger says. "We don’t know exactly what is going to happen, but we plan for the worst and hope for the best and not have any surprises.”
Small says while having a plan is important, communicating with your lender is key.
Stockbrugger says it’s key to have those talks early with a banker to avoid surprising them, which can lead to a scramble in the case of a financial jam.
It’s important to have a spring cash flow plan created as much as a year ahead time, which can be done by sitting down annually with a financial expert such as an accountant and going over the balance sheet and income statement. Build a strong relationship with lenders by frequently communicating farm plans for moving forward.
Learn how cash flow planning can keep you on the right financial track.