John Gibson - Head of Partner NZ AU
Farming for profit (aka live long and prosper) is rapidly gaining momentum as a means for increasing performance when it comes to the business of farming.
The old mantra of cash is king is being replaced by deeper and more holistic thinking across the entire business of farming. Cash is still important, of course it is, but today’s farmers are now seeing cash flow as one of three key components involved in running a successful business - alongside understanding, and having day to day visibility over, the forecast profit & loss and balance sheet.
This blog explains in simple terms the meaning and importance of not only owning your forecast cash flow but also your profit & loss and balance sheet and their considerable influence when it comes to managing a profitable farming operation.
Cash, not the King it used to be
Cash is the lifeblood of the farmer’s business. Just like blood flows through the veins of farmers as they’re out working the land, supplying the body with nutrients, while transporting surplus material away from the body, cash is also needed to flow in and out of the business to keep it alive. Having visibility over the farm’s current and forecast cash position is critical to the day to day operation of the business.
Profit is the new Kingmaker
If cash is the day to day lifeblood of the business then profit and loss measures the overall health and well-being of the business. In simple terms it is the sum of all income, less expenses, regardless of whether any cash has changed hands and includes non-cash items such as depreciation. A business might be generating cash but may not be profitable if it can’t meet all of its commitments. The bottom line of the forecast profit and loss is your net profit - what is leftover after you have met all of your commitments. Profit is what the business owners, investors and lenders are interested in. It is also the thing the taxman looks at.
Balance Sheet - the crystal ball
So, if cash is your day to day lifeblood and profit is the overall health and well-being, what is the balance sheet? The balance sheet lists all of your assets less any liabilities. The forecast balance sheet describes the future of your business, what your investment is worth and is an indication of what your business would owe you if you were to liquidate your assets and pay back what you owed.
Leveraging technology to run a better farm
In today’s world, farmers can easily limit their options and put their business performance and long term security at risk if they focus solely on managing cash flow.
The integrated Xero / Figured technology solution is geared to provide farmers and their advisors with the insights to farm for profit across all three of the key financial drivers for farming.
Farmers love farming, but it is a tough business with increasingly more variables and moving parts. We’re in the business of helping farmers and their advisors have better visibility over the entire operation. We provide them with the tools to make good decisions in the here and now, that will have a positive effect on profitability and the farmer’s longer term goals and objectives.