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Keep a proactive cash flow

Grazing with Steve Kenyon

My busy season is officially over. We had a great year here at Greener Pastures. The main herd is still on dormant-season grass and will be switching over to bale grazing soon. The second herd is doing fine bale grazing and licking snow. I love winter.

My bales are all set up and twines were pulled in the fall. All in all, it takes me about six hours a week right now to get all my chores done for just over 400 head. What on earth do I do with all the rest of my time? The first thing, of course, is to spend extra time with my family. I like to do crafts and read with my six-year-old daughter, I play games and build Lego Ninjago with my 10-year-old son, and I seem to be spending a lot of time helping my pre-teen daughter practice her attitude! Seriously! Like OMG! LOL! And tonight my sweetie and I are off to the dinner theatre.

But, when it is time for work, I spend my time working on my business. Office work: income tax, economics, promotion, advertising and cash flow. I now have time to calculate out my grazing charts and figure out my actual profit. I need to make a business plan for next year, run a gross margin analysis and set up a new cash flow for 2012. This is also when I plan and advertise my grazing schools for this winter and spring. Yikes! Did I say my busy season was over? I better get a move on. April is almost here!

Today, let’s talk cash flow. My cash flow is a financial tool. It helps me plan ahead and predict what my bank account will look like. It does not show me the profitability of my business. That is what my gross margin analysis does. Profitability is economics. Cash flow is finances. Economics tells me if I am making money, finance tells me if I can afford to do it!

It is possible to have a profitable venture that you cannot cash flow, or you can have a very unprofitable undertaking that you can finance. Yes, both situations happen all the time. Don’t get me wrong, I like my banker, but in many cases, a banker will be happy to finance you on something that you can cash flow that is totally unsound economically. It is up to you, not your banker, to manage your business.

I feel it is very important for a business to be proactive on its cash flow. What I mean by this is to make sure you have a good understanding of monthly cash inflow and outflow to be able to accurately predict what your bank account will look like 10 to 12 months in advance. If you can plan ahead month to month and see when the bank account looks “a little red,” you have plenty of time to reset the plan and figure out a way to make your cash flow work.

If I get into a situation where there is a pinch on my cash flow that I can’t deal with on my own, I go in and talk with my banker six months in advance to explain the situation to him. I provide him with a cash flow and a possible solution. This sure makes him easier to deal with when the pinch hits. The alternative is to be reactive on your cash flow when a cheque bounces or the debit card is declined. Your banker probably won’t be quite so understanding of your situation with this type of cash flow planning.

I have a very simple cash flow that helps me plan my year. As a custom-grazing operation, I rely heavily on my cash flow as I receive my income monthly, but it varies. Most of my cash inflow comes during the summer and fall. Winter and spring tend to have lower inflows. Fortunately, outflow is similar. I do know that for my business, if I have a month of the year that might be tight, it is usually April. Just before the grazing season kicks into gear. If I find a new piece of land to rent, I can look at my cash flow to determine the best month to have rent come due and then negotiate that with the landowner. It might be profitable to rent the land, but if they have to have all the rent paid up in April, it may not cash flow.

If I can plan my cash flow to make sure every month has a positive balance, I am happy. If not, I might need to find some type of financing to make sure I can get through that pinch. Remember, we only want to finance things that are profitable! Just because you can cash flow something does not make it profitable. I prefer to stay away from the need to use an operating loan or credit, but I understand, sometimes to make money, you need money. Just make sure it is for a profitable venture.

My spreadsheet is very simple to use as long as you have a minimal understanding of Excel. It actually runs a business cash flow as well as a personal cash flow at the same time. I also have a few different sheets linked together to help calculate out different parts of my business separately but include them all as one spreadsheet. My grazing revenue, my land rent, hay purchases and sales, are all calculated out on different sheets that link back to the main cash flow. This makes it very easy to adjust if need be.

If I am going to maintain my cash flow on a monthly basis, it needs to be easy. My spreadsheet takes a couple of hours to set up and then takes a few minutes each month to adjust and re-plan throughout the year. Each month I compare my actual cash flow to the predicted, correct and adjust. In some cases it might need a complete overhaul but generally it does not take that much time to monitor.

I manage a farm business; the operative word being business. Take the time to understand your finances and be proactive on your cash flow. It not only makes a lot of sense for the health of your business, but for the health of you and your family as well. Life is too short to be stressed over finances all the time. Be in control of your finances; be in control of your business. It is well worth the time invested.

About the author


Steve Kenyon runs Greener Pastures Ranching Ltd. in Busby, Alta. You can email him at [email protected] or call 780-307-6500.

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