The importance of cash flow forecasting

Let’s not beat about the bush, the farming industry is under significant pressure, the announcements in October threw previous succession planning into chaos with many families wondering how they can continue to hold on to the farm that’s been the lifeblood of the family for generations. Add in the significant decrease in the amount of the 2025 Basic Payment Scheme (BPS) together with the sudden withdrawal of new Sustainable Farming Incentive (SFI) applications and the currently suppressed crop prices, it paints a somewhat bleak picture not helped by a lack of recent rainfall likely to impact the 2025 harvest.

The impact of the crop prices, reduced BPS and potentially reduced SFI income are putting more pressure on business cash flow, this is why it has never been more important to prepare cash forecasts. This is generally advisable for any business (sometimes mandatory when obtaining external finance) but in the current times, forecasting could not be more important.

Predicting accurate future income and expenditure has been made much more complicated by the volatility of the markets (not to mention changing government policy), however, the main cash “pinch point” positions are likely to fall at the same times each year, albeit probably more pronounced particularly with the decrease of BPS.  Identifying these points and likely working capital impacts may assist with potential supplier negotiations to agree extended payment arrangements or in obtaining short-term finance, the key point is having the information at hand to be able to negotiate.

An option being considered is to outsource the operations to contractors in full or for specific tasks such as harvesting or cultivations or even engage in machinery sharing agreements. This potentially brings in some cash initially for the sale proceeds of equipment no longer required and likely reduce maintenance and some overhead costs, but this will have tax implications and potentially make it more difficult to take back the operations in future. Outsourcing in part or in full or machinery sharing needs to be considered carefully on a case-by-case basis, as it will not suit all businesses.

Detailed cash flow forecasts are one of the best tools to help a business understand its finances and provide management with the information to help cut costs, as such their importance cannot be understated.

The information contained within this publication is given by way of general guidance. Specialist advice should always be sought in relation to your particular circumstances. No liability is accepted by Ensors for any actions taken without seeking appropriate professional advice.