Most businesses get paid a bit every week. Farms don’t. A sheep farm might take most of its income between July and November. An arable farm can spend for ten months before the harvest cheque arrives, and then hold the grain for a better price. Dairy is steadier, but a cut in the milk price hits every month at once. Meanwhile rent, wages, feed, fertiliser and finance payments carry on regardless.
That’s why the annual accounts, useful as they are, don’t tell you whether there’ll be enough in the bank in March. A cashflow forecast does.
1. Map your farming year
Before any numbers, sketch the year month by month. For each enterprise, note when the work happens, when you sell and, crucially, when the money lands. A typical Yorkshire picture might include:
- Livestock: lambing, store and finished lamb sales, calf and store cattle sales, cull ewes and cows.
- Dairy: monthly milk payments, usually paid the month after collection.
- Arable: harvest, then grain sold off the combine, stored and sold later, or sold forward.
- Scheme payments: Sustainable Farming Incentive payments each quarter and the last, much smaller, delinked payments in August. See our guide to SFI and delinked payments.
- Fixed dates: rent days (traditionally Lady Day, 25 March, and Michaelmas, 29 September), VAT returns, tax payments, insurance and loan repayments.
2. Start with the bank and the overdraft
Begin with today’s balance on every account, and the overdraft limit and when it’s next reviewed. The limit is the line your forecast must stay above.
3. Put income in, enterprise by enterprise
Forecast numbers sold, realistic prices and the date the money actually arrives. The mart usually pays within days; a merchant may pay on agreed terms after collection. Be prudent on price. If you budget lambs at last year’s best trade, the forecast will flatter you.
4. Add every cost on its real date
- Variable costs: feed, fertiliser, seed, sprays, vet and medicines, contractors, fuel.
- Fixed costs: rent, wages, power, insurance, repairs, professional fees.
- Finance and capital: loan and machinery finance repayments, deposits on new kit.
- Tax and drawings: income tax or corporation tax, and what the family takes out to live on.
Many inputs are bought months before the crop or stock they feed is sold, so this is where the squeeze usually shows.
5. Don’t forget VAT
Much of what farms sell (most food and livestock for food) is zero-rated, while many inputs carry VAT. So VAT-registered farms are often due repayments from HMRC. That’s good news, but the money arrives after the return is processed, not when you pay the supplier. Forecast both dates. If you’re regularly owed VAT, monthly returns can bring the cash back sooner.
6. Find your peak borrowing month
Run a monthly balance: opening cash, plus income, minus costs. The lowest point in the year is your peak borrowing month.
The most important number in a farm forecast is the lowest point, and the month it happens.
If that low point breaches the overdraft limit, you’ve found the problem months ahead, while there’s still time to move a sale, phase a purchase or talk to the bank.
7. Test the bad year
Farming rarely goes to plan, so test it. What if lamb prices fall 10%, the harvest is late, yields are down or fertiliser goes up again? A good forecast shows how each one moves the low point, so a bad year doesn’t become a crisis.
8. Keep it rolling
Once a month, compare what actually happened with the forecast, update the next twelve months and roll it forward. Ten minutes a month keeps the forecast honest and useful.
Want a head start?
Try my free 4-week cashflow tool for the weeks ahead. If you’d rather have the full farming year built around your enterprises, with someone to explain what it’s telling you, that’s exactly what my services do.
An accountant of ten years who has built more cashflow forecasts than hot dinners. I help farms and agricultural businesses across Yorkshire see what’s coming and plan for it. More about me.