Cash Flow Management and Input Planning

The principal means of planning for future finance needs is by a cash flow forecast. This is a good way of showing future anticipated peaks and troughs in the money coming into the business and the costs which the business will have to cover during that time.

In this way, cash flow forecasts help to plan borrowing and indicate how much surplus money is likely to be available to the business at a given time. Before considering the grant of a loan, banks are likely to require a cash flow forecast, thus demonstrating that a degree of planning has been made.

The cash flow forecast identifies the sources and amounts of cash coming into a business and the destinations and amounts of cash going out over a given period. To keep track of whether the predicted figures are being met, it may be useful to have two columns listing forecast and actual amounts respectively. The cash flow analysis is a good means of setting cost reduction targets.

The forecast is usually done for a year or two years in advance and divided into months, or sometimes weeks. The forecast lists:

  • Receipts.
  • Payments.
  • The excess of receipts over payments, with negative figures shown in brackets.
  • The opening bank balance.
  • The closing bank balance.

It is important to base initial forecasts of both receipts and payments on realistic predictions, particularly as the effect of an unrealistic figure can be cumulative over several months.


Cash flow is dynamic; it will change and require adjustment frequently depending on farm business activity and payment patterns. Regular reviews of the forecast will help to:

  • See when problems are likely to occur and enable them to be sorted out in advance.
  • Identify any potential cash shortfalls and take appropriate action.
  • Ensure sufficient cash flow is available before any major financial commitment is taken on.

Ideally, a contingency plan such as retaining a minimum amount of cash in the business can be used to meet short-term cash shortages.

To control costs and manage cash flow, it would be wise to spend time:

  • Obtaining quotations for inputs.
  • Searching for the best deals, particularly on-line.
  • Searching for low cost credit terms.
  • Investigating joining a buying group.
  • Negotiating deals on regular orders.
  • Buying in bulk where it is appropriate.
  • Managing machinery purchases by using finance, hire purchase or leasing to spread costs over time.

Variable costs can be reduced through careful planning of inputs: for example, appreciating the full value of slurry and FYM and using them judiciously can help to reduce dependence on expensive artificial fertilisers.

There may be less potential for controlling overheads but it is important to look for good deals from energy and fuel providers, and also to implement cost saving measures like the use of low-wattage energy-saving lighting. Studies have shown that controlling overheads is a key consideration in enhancing profitability.