statement of cash flows

Using the Power of Cash Flow Projections to Manage Your Business

A cash-flow projection is an important financial tool used to estimate the amount and timing of cash inflows and outflows. How a projection matches up with the actual cash flow in a given month tells whether you have excess funds to save for another month, use to pay down debt or jump on an opportunity.

It also helps you determine the size of an operating loan you will need.

As the operating cycle you’ve planned progresses, the projection is replaced by actual results. This information can alert you to changes you may have not expected. Additionally, having an accurate, near-real-time cash flow often improves the speed and quality of your operational decisions.

“In January, my dad was offered an opportunity to buy a pen of calves. He needed to know immediately,” said JR Wasserburger, a fourth-generation cattleman. “Because we keep our cash flow up to date, I was able to look at our records via my phone and tell him the amount we had available in less than two minutes.”

Knowledge is power

That kind of knowledge is power, yet less than a quarter of producers prepare a cash flow statement, according to Bob Schmidt, a senior vice president with Frontier Farm Credit. He listed the following as additional benefits to cash flow projections and updates:

  • A roadmap to guide operation decisions
  • Awareness that allows you to market commodities in a timely manner
  • The root of financial acumen in any business, and particularly agriculture: It translates to the balance sheet, working capital; it is foundational to all other key metrics.

Schmidt notes that MagnifySM, an ag financial management tool available through Frontier Farm Credit, can help producers create and track cash flow projections. “Magnify delivers a comprehensive picture of anticipated cash flow, profitability and working capital to aid decision-making,” he says. Among other things, it can help producers create budgets and provides automatic updates through the year to help them view cash flow and profitability throughout the year.”

“Building cash flow projections is an important component of the work we do with young farmers and ranchers,” added Carl Horne, vice president of customer solutions for Frontier Farm Credit. “Starting an operating cycle with a plan and having the ability to keep that information updated is a critical management capability.”

“The importance of cash flow lies in monitoring operating performance during the year rather than after the fact,” said Dick Zach, vice president of credit with Frontier Farm Credit. “This allows you to determine whether adjustments need to be made proactively during the cycle.”

Cattleman Wasserburger can attest to that. “Every month, we monitor to see if we are on target to make our goals, and to see if our practices make sense,” he said. “We had planned to sell hay in January, but it didn’t happen. Our cash flow reminded us to see that it did in February.”

As another example, they typically kept steers from their cow/calf operation into January and sold them at 900-1,000 lb. “We saw that the last three years, we fed a lot of hay and feed to those cattle, yet the price we got was about the same as if we sold on December 1. This year, we did sell in December and saved on the hay and feed.”

The marketing link

Cash flow goes hand-in-hand with “cost of production,” added Bob Campbell, a Frontier Farm Credit senior vice president. “If you calculate your cost of production, you will know the price you need for your production to break even. Then, your cash flow will tell you when you need the income so you can proactively create the needed cash flow.”

Campbell recommends using your APH history or historical production averages for livestock, then updating figures through the season, both to reflect how production is shaping up and sales you have made. “Ask yourself, what’s my break-even today? How does that align with market prices during the seasonally strong period?”

“The goal is to not be forced to sell just to meet cash needs,” said Campbell. “Planning ahead and knowing your cash position will inform those decisions.”

The bottom line

“Cash is the lifeblood of an operation,” Zach said. “Producers need to manage the flow of cash to cover normal expenses, debt service and living costs. Through timing of inventory sales, incoming payments and borrowed funds, a manager can assure there is sufficient cash on hand to cover those outflows.”

That’s the short-term goal at the Wasserburger ranch. The long-term goal is to keep the ranch in the family.

“Our land was homesteaded in 1886; we still have the original document. We’d like to keep that in the family. My son will be the fifth generation on the ranch. I partly credit our record keeping. It opens the door to discussions we wouldn’t have otherwise. I’ve watched several friends and neighbors who hardly talk to their family and stand to lose that tie to the ground.”

“Investing the time to build and maintain a cash flow can pay big dividends for improving your management capabilities,” Horne noted. “Get the support and guidance you need to add this to your financial toolkit. Our financial experts are ready to help.”

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Agriculture is like no other business, which is why Frontier Farm Credit is like no other lender.

While some agricultural operations are more challenged than others by lower commodity prices, everybody in the industry has been impacted by the past year’s volatility and uncertainty. Your financial cooperative was built for times like this. In fact, this prolonged period of compressed margins has proven more than ever the value of a mission-driven lender in agriculture.

In 2018, for example, Frontier Farm Credit offered a one-time principal-deferral program on qualifying loans that allowed customers to retain working capital while implementing cost-adjustment solutions. We revamped our crop insurance agency to give customers more options for doing business with us, including online renewal of policies. And we introduced MagnifySM, our one-of-a-kind accounting and farm management tool designed to help producers be better, more confident managers of their businesses.

Individually, each initiative represents a significant investment in the success of our customer-owners. Collectively, they underscore the power of our mission-driven, customer-owned business model.

The benefits of that model are also evident in the $96.1 million that Frontier Farm Credit has returned to customer-owners since we began our patronage program 15 years ago. For 2018, the Board approved the largest cash-back dividend in our history, the equivalent of 90 basis points for an estimated payout of $15.7 million. The Board intends to keep cash-back dividends at 90 basis points for the foreseeable future, barring unforeseen events.

The Board is confident that your cooperative can maintain this level of cash-back dividend payments because of its solid financial performance. We finished 2018 with net income of $46.4 million, an increase of 6.5 percent. Members’ equity rose to $451.4 million.

I am proud to lead a cooperative that is putting its strength to work for customer-owners, not only for today but also for tomorrow. We are making investments that will allow Frontier Farm Credit to grow and change with our industry – and continue serving you through all the changes to come.

This includes finding new ways to use technology and data to serve you better and enhance the operating efficiencies that contribute to your cooperative’s financial strength. It means further developing financial tools such as Magnify to help you better understand the profitability of your operation while adding new digital channels to make it easier to do business with us. And it means continuing to invest in people who can help us deliver on our vision of being agriculture’s most valued financial partner.

The stage is set for change in our industry and your cooperative is ready for it. Thank you for choosing us as your lender. We look forward to serving you and your families in the years to come.

Mark Jensen
President and CEO

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Seasonal Price Strength: Are you Ready?

Looking for ways to improve your crop marketing strategies? As part of Frontier Farm Credit’s commitment to bringing you financial and business management insights you can use, Steven Johnson from Iowa State University Extension shares his suggestions for marketing strategies with producers.

Click to view an interactive recording of Steve’s presentation. Walk through tips for improving your marketing strategies with interactive text, illustrations and video clips. Follow along with case studies from actual producers that illustrate Johnson’s tips. The material is customizable—you can either choose the sections that are of interest to you or view it start-to-finish.

GrowingOn 2019 course wrap up image

Included in the interactive recording:
Tip 1: Know cost of production, cash-flow needs, breakevens, and profit margin.
Tip 2: Understand seasonal futures price trends.
Tip 3: Track basis patterns.
Tip 4: Link crop insurance to pre-harvest marketing.
Tip 5: Execute a written marketing plan.

Frontier GrowingOn 2019 course wrap up image social media

Farm Finances: How do you compare?

In today’s ag economy, several important measures of farm financial health are front of mind. As agricultural economist David Widmar described, “The check engine light is flashing.” As part of our commitment to bringing you financial and business management insights you can use, Frontier Farm Credit invited Widmar to share his perspective with producers, along with his top management factors.

Click to view an interactive recording of David’s presentation. This interactive learning experience includes text, illustrations and video clips. The material is customizable—you can either choose the sections that are of interest to you or view it start-to-finish.

Frontier GrowingOn 2019 course wrap up imageIncluded in the interactive recording:

  • How did we get here in the ag economy?
  • What has impacted the ag economy?
  • How are other ranchers and farmers doing?
  • What’s the outlook for cattle?
  • What does the global ag economy look like?
  • What management tips should come into focus for 2019?
farmer in the field

New in 2019: Multi-county Enterprise Unit

Farmers now can choose to combine acreage of an insured crop across county lines into a Multi-county Enterprise Unit Endorsement (MCEU). This allows farmers to qualify for the better EU premium rate on land that wasn’t eligible for an EU in the past.

The basics:

  • One county must qualify independently for EU; the other county must not qualify.
  • The land in the combined EU must all have the same elections (insurance plan, coverage level and practice, such as irrigated or nonirrigated).
  • The MCEU doesn’t combine the county crop policies – only all insured acreage of the crop/practice. Separate applications and policies are required for each county.
  • APH yields for each county are not impacted.
  • Premium, guarantee and liability will be calculated separately for each county based on the acres and actuarial documents for that county. But the EU premium discount will be determined by using the total acres in the MCEU.

Don’t wait until the last minute to look into this new option.

Your Frontier Farm Credit crop insurance team has been trained to understand the rules involved. We are ready to help you assess whether the new MCEU would be advantageous to your operation.

Call your local Frontier Farm Credit office or 800.397.3191 for help with this decision today.