How cash flow statements help with farm expansion

When you plan for growth around your farm operation, such as a construction project, having a solid cash flow statement can help turn dreams into reality.

FCC Senior Relationship Manager Paul Bateman says farmers should view a cash flow statement as a building block to business planning.

“Consider a cash flow statement as a foundation or base-case scenario,” Bateman says. “Once complete, you can use it to test infinite scenarios. Think of it as a tool, not a task.”

Start with the knowns: Your farm business bank balance, identified expenses and confirmed income. Then, build your cash flow statement from there.

Bateman says there are three important factors to keep in mind when growth plans involve construction on the farm.

1. Setup

Start-up costs for the proposed project, including construction, initial investments, labour and other associated costs.

2. Contractor payments

All contractors' payments are required based on the payment schedules outlined in the quotes. Also, consider the sources for making these payments, including owner injections, cash from operations or disbursements from your lender.

3. Taxes

In provinces where sales tax is paid and then reimbursed, consider the timing of the payments and how long before reimbursements are made. Large payments impact short-term cash flow, which will readjust when reimbursement is received. However, there’s also a chance you may have your claim audited, which could delay a refund.

Don’t forget assumptions

When creating a cash flow statement with the goal of a construction project in mind, include an assumptions page. It’s a space to show the sensitivity of the cash flow projections, which can help identify risks and plan contingencies.

Consider including the following in an assumptions page:

• Cost of the project

• Sources and specific uses of funds

• Interest rate, payment frequency, and amortization on the amount borrowed

• For primary production, summarize the price and production assumptions. If you have multiple commodities, summarize each of them.

• Any other useful information on overall cash flow, including noteworthy items. For example, include labour expenses that reflect an average of the previous five years, adjusted for the expanded acreage.

Cash flow statements and how they are generated are important to farm management, especially when planning an expansion or start-up. Begin with your bank balance, add expected cash inflows for the month, and subtract planned cash outflows, including any expenses related to construction or expansion projects, to arrive at an end-of-the-month cash position.

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