Of all the many variables in farming, having cash in hand is probably one of the things that most often keeps farmers up at night.
Cash flow is a critical business element and managing it, is very possible according to Nico Groenewald, head of agribusiness at Standard Bank. He gives farmers advice on how to achieve this during the first episode of African Farming‘s new season, aired on Honey, channel 173, Tuesdays at 17:00.
Groenewald says many people think the success of a company is its reported profits. While profits are good, they do not fully represent the financial standing of a business. A healthy cash flow is also needed.
“It is quite possible for a company to report profits but go out of business. It is also possible for a profitable company to not be able to grow, secure financing, or attract investors.”
Cash flow management is therefore quite important.
“Cash is king. A farming operation can appear profitable on paper but not have enough actual cash to buy stock or pay its immediate operating expenses such as its lease and monthly utilities. A cash-flow budget is one of the most important aids in modern farming. The reason is that the farm’s cash income is seasonal, whereas payments occur throughout the year. Funds could be needed to buy production aids at a time when crops or livestock are not ready to be sold. By managing his cash flow, the farmer can make provision for this eventuality, enabling him to make timely arrangements with his bank manager or other financiers to:
• Extend credit facilities.
• Defer the repayment of debt.
• Apply for additional loans timeously in order to cover cash expenses.
• Schedule the purchase of capital items to coincide with cash surpluses.
• Regulate the choice of enterprises in such a way that income becomes more regular.
• Sell unnecessary capital items in periods of cash shortages.
“As such, lenders rely on a company’s current and projected cash flows to determine whether it will be able to afford the additional debt.”
For more information, visit https://www.standardbank.co.za/southafrica/business/products-and-services/business-solutions/industry/agribusiness
