I was talking to one of my mentors about psychology and how when we focus…
Cash Flow Lessons From the Drought
It’s never good to hear when businesses suffer and fail, but when whole industries are suffering it’s a complete disaster for us all.
When that industry is the agricultural sector, on which we rely for our food, and for the livelihood of the towns that support them and employ their family members; the ripple effect is enormous.
Whilst we rally around to help and support in any way we can individually and collectively, I can’t help but think about how the feast and famine of farm life is similar to the flow of cash through each and every one of our businesses.
We have months, perhaps even years when business is booming, and cash flow is good.
We spend money on some extra luxuries during this time, perhaps reinvesting in the business, or perhaps enjoying life a bit more, taking a well-deserved holiday or paying for extra-curricular activities for the kids.
Then something changes.
It could be an increase in Award wages, a stagnation of income, marketing not working as well as it was, increased competition, the list goes on. Whatever the reason, business is tougher, and the cash flow dries up until the point where you’re no longer able to pay the bills when they are due, and you get behind on payments.
This is what farmers face each time there’s a drought, a flood or a tropical storm or any other act of nature that is extreme. Also, to a lesser extent when there are smaller changes in the weather, like the situation where there is no rain when it is needed for the crop or too much rain when it’s harvest time, and the crops are damaged.
Whilst there is legislation in place to help farmers spread out their income by putting money into the Farm Management Deposits Scheme in the good years to withdraw it in the tough years, this scheme only applies if the farmer is an individual or farming in partnership. Thus those in the farming community who use companies and trusts to run their business don’t have access to this option.
I believe that every business, farmers included, needs to be looking to the future and projecting their cash flow.
Whilst the challenges that the farming sector face are often more abrupt and quick to occur than in other industries. The decision whether to plant a crop or whether you have enough fodder to feed your livestock needs to be made well in advance to get the best result in the event of a bad situation developing. Too often, farmers don’t have the luxury of time in advance to make those decisions.
In other types of businesses, the writing may well be on the wall if you know what to look for with tell-tale signs that all isn’t quite as it should be.
The best time to start using cash flow forecasts in your business is today, whether it’s because times are tough or because times are good.
If times are good, put money aside to help when and if times get tough. If times are currently tough, work through how to get out of that position and into one where you can put money away for the future.
Whatever the situation, a cash flow forecast will provide you with the information to help you make decisions about the future of your business and what you need financially to keep it going.
“The opinions expressed by Smallville Contributors are their own, not those of www.smallville.com.au"
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