Februarie/Maart

44 ••• DEvElopiNG aGricUlTUrE
your
farm cash flow
FaIlURe TO MOnITOR lIqUIDITY anD
enSURe ThaT CaSh IS aVaIlable,
Can haMPeR YOUR FaRM bUSIneSS
OPeRaTIOnS.
> TEXT: SIPho loWAnE
Cash flow management is vital
to the health of your farming business. There is a
saying: “Revenue is vanity and profit is sanity, but
cash is king”.
In its simplest form, cash flow is the movement
of money in and out of your farming business. Its
importance is particularly worth noting during these
times when farm income is squeezed and sourcing
financial assistance is subject to severe scrutiny by
financial service providers.
WhAT ARE ThE SouRCES oF
CASh FloW PRoBlEMS?
It is common that a farming business will, at one
time or another, experience cash flow problems. The
problems may arise as a result of several factors
such as too many creditors or excessive credit,
>
unfavourable market conditions, unfavourable climatic
conditions and increased cost of intermediate
goods and services. Prevalence of these factors will
have a negative impact on the liquidity reserve of
any farming business.
WhAT IS lIquIDITy?
liquidity refers to the ability of your farm to generate
enough cash to meet financial obligations as they are
due, without disrupting normal operations of the farm
business. In Figure 1 this concept is illustrated.
as a farmer you need to manage a liquidity reserve
to prevent cash shortages from disrupting
normal farm business operations and to prevent
nonpayment on due financial obligations.
TIPS FoR CASh FloW PlAnnInG
• as the season progresses, keep an actual cash
flow statement to record cash transactions as
they take place. Compare the actual cash flow
statement with the projected cash flow statement
drawn prior to the accounting period to see if
things are going as planned. This will enable you
to respond and devise remedies to solve unforeseen
problems or to take advantage of opportunities
that were not anticipated.
www.senwes.co.za • Februarie/Maart 2011