# Your first farm cashflow

A free short course from Farm CFO by Clunes Rural. 5 lessons, about 25 minutes in all. No sign-up.

Build a simple July to June farm cashflow, put sales and GST in the right months, and find the month your overdraft is at its lowest.

Who it's for: Pig, cattle and sheep farmers building their first monthly cashflow, or fixing one that never quite matches the bank account.

You'll be able to:
- Explain why a profitable farm can still run short of cash
- Set up a 12-month cashflow from July to June
- Put sales, costs, GST and loan repayments in the month the money moves
- Find your lowest month and keep the forecast up to date

## Lesson 1: Cash and profit are not the same thing

A farm can make a profit and still run out of money. It sounds wrong, but it happens all the time, because profit and cash measure different things.

**Profit** is what the year earned: income less costs, as your accountant works it out. **Cash** is the money actually in the bank, or how far into the overdraft you are.

## Why they differ

Four things push them apart.

1. **Timing.** A sale counts in profit when it's made. It counts in cash when the money lands. Cattle sold in late June might be paid for in July, in the next financial year.
2. **Depreciation.** This is the cost of machinery and buildings spread over their working life. It lowers profit, but no cash goes out for it.
3. **Loan principal.** Principal is the part of a repayment that pays off the loan. It takes cash, but it isn't a cost in the profit.
4. **Drawings and big purchases.** Drawings are the family's living costs taken from the business. They, and money spent on a new ute or a block of land, leave the bank, but most of it isn't counted as a cost in that year's profit.

There's another one on livestock farms. If you build up numbers, you spend cash on feed and keep stock you'd otherwise sell. The accounts may count the extra stock as value on hand, but you can't pay bills with it.

## Budget and cashflow: two jobs

A **budget** asks: will the year make a profit? A **cashflow** asks: when will the money move, and will the overdraft carry us between sales? You need both. Our guide to [your first farm budget](https://farmcfo.com.au/guides/first-farm-budget) builds the budget. This course builds the cashflow.

## Why the bank cares about cash

The bank has lent you money and wants it back. Profit tells it the farm is worth running. Cash tells it the repayments can be met, month by month. That's why the cashflow is one of the first things a credit officer reads.

## From profit to cash

To go from a year's profit to the change in your bank balance:

- start with profit
- add back depreciation
- take off loan principal
- take off drawings
- take off spending on machinery, land or extra stock

If the answer is below zero, the bank balance went backwards, even though the farm made a profit.

Drawings are the line most first cashflows get wrong, because people guess. The [household drawings calculator](https://farmcfo.com.au/tools/household-drawings) helps you put a real number on it.

### Worked example

**An invented farm, for learning only.** A sheep business shows a profit of $40,000 in its accounts. That's after $25,000 of depreciation. During the year it also paid $30,000 off its loans, and the family took $45,000 in drawings.

| | Amount |
|---|---:|
| Profit | $40,000 |
| Add back depreciation | $25,000 |
| Less loan principal | $30,000 |
| Less drawings | $45,000 |
| **Change in the bank balance** | **minus $10,000** |

The overdraft is $10,000 deeper at the end of the year than at the start, even though the accounts show a $40,000 profit.

Try the household drawings calculator: https://farmcfo.com.au/tools/household-drawings

### Check your understanding

1. Which of these lowers profit but not cash?
   Answer: Depreciation. Depreciation is a cost in the accounts, but no money leaves the bank for it. Principal and drawings are the other way round: they take cash but don't lower profit.
2. A farm shows a profit, but its overdraft got deeper over the year. What's the likeliest reason?
   Answer: Loan principal, drawings or purchases took out more cash than the profit brought in. Profit doesn't count principal, drawings or most big purchases, but they all take cash. If they add up to more than profit plus depreciation, the bank balance goes backwards.
3. What question does a cashflow answer that a budget doesn't?
   Answer: When the money moves, and whether the overdraft can carry you between sales. A budget looks at the whole year's profit. A cashflow shows each month's bank balance, so you can see whether the limit holds between sales.

## Lesson 2: Setting up a July to June cashflow

In Australia the financial year runs from 1 July to 30 June. Most farm accounts and bank reviews follow it, so it's an easy place to start your cashflow. If your main sales fall just after June, run the forecast far enough to include them.

## Step 1: The layout

Use a spreadsheet with one column for each month, July to June. Down the side, list:

- opening balance
- cash in, line by line
- cash out, line by line
- net cash for the month (cash in less cash out)
- closing balance

The closing balance for one month becomes the opening balance for the next. Start July with the real balance from your bank statement. If you're in overdraft, show it as a minus number, so the figure reads the same as your statement. Our [cashflow budget template](https://farmcfo.com.au/downloads/farm-cfo-cashflow-budget.xlsx) is set up this way.

## Step 2: Put sales in the month the cash arrives

This is where most forecasts go wrong. A sale belongs in the month the money hits your account, not the month the stock leaves. Agents and processors often pay a week or more after the sale. Check last year's bank statements to see how long yours took.

- **Pigs** usually sell every week, so income is fairly steady. Forecast pigs sold, carcase weight and price, then total by month. Some months have five sale weeks.
- **Cattle** income often comes in a few sale months, such as weaners in autumn and cull cows later in the year.
- **Sheep** usually bring a wool cheque some time after shearing, plus lamb sales spread over several months.

## Step 3: List every cost in the month it's paid

Go through last year's statements line by line: feed, animal health, shearing, freight, selling costs, wages, fuel, repairs and power. Then add the once-a-year bills, like rates, insurance, registrations and a big fertiliser order. These are easy to forget, and they often land when the overdraft is already deep.

## Step 4: Debt and drawings

Put in every loan repayment, both interest and principal, in the month it's paid. Add drawings, which are the family's living costs. Add any planned spending on machinery, stock or land. A cashflow without drawings will always look better than the real account.

## Step 5: Give GST its own line

Build the trading lines without GST, and add GST as a separate line. Lesson 3 explains why.

## Start from what you know

Last year's bank statements are the best starting point. They show what really went out and when. Then change the figures for what you expect this year. The [cashflow forecaster](https://farmcfo.com.au/tools/cashflow-forecaster) builds a simple version from your own numbers.

### Worked example

**An invented farm, for learning only.** A breeding cattle business sells 200 weaners at a saleyard on 28 March. They average 250 kg liveweight at $3.80 a kilogram.

| | Amount |
|---|---:|
| 200 head x 250 kg x $3.80 | $190,000 |
| Less selling costs at 5% | $9,500 |
| **Paid by the agent** | **$180,500** |

The agent pays on 4 April. So the $180,500 goes in April, not March.

That matters. If the forecast put it in March, the March closing balance would look $180,500 better than the real account. And if March is the lowest month, the forecast would hide it.

Try the cashflow forecaster: https://farmcfo.com.au/tools/cashflow-forecaster

### Check your understanding

1. Weaners are sold on 29 June and the agent pays on 8 July. Which month should the cash go in?
   Answer: July. A cashflow puts money in the month it reaches your account. The agent paid in July, so that's where it goes.
2. What's the closing balance used for?
   Answer: It becomes the next month's opening balance. Each month starts where the last one finished. That chain is what lets you see the balance move through the year.
3. Why go through last year's bank statements when building a cashflow?
   Answer: They show what really went out and when, including the once-a-year bills. Real statements show the true timing and the bills people forget. You then adjust them for what you expect to change this year.

## Lesson 3: GST and the BAS in your cashflow

GST, short for goods and services tax, is a 10% tax on most goods, services and other items sold in Australia. Some sales are GST-free. A business must register for GST once its GST turnover is $75,000 or more.

Once registered, a business includes GST in the price of what it sells. It can also claim credits for the GST in the price of things it buys for the business. It reports both to the ATO, then pays the difference or gets a refund.

How GST applies to your farm, and which of your sales include it, is a question for your accountant. We don't give tax advice. This lesson is only about where GST sits in a cashflow.

## The BAS

The business activity statement, or BAS, is the form a business uses to report GST and some other taxes to the ATO. Your accountant or bookkeeper usually prepares it.

The ATO says the GST reporting cycle can be monthly, quarterly or yearly:

- **Monthly** if GST turnover is $20 million or more. A smaller business can choose monthly, or the ATO can ask for it.
- **Quarterly** for most businesses under $20 million.
- **Yearly** for some businesses that registered by choice, with GST turnover under $75,000.

For a quarterly BAS, the ATO lists these due dates:

| Quarter | Due |
|---|---|
| July to September | 28 October |
| October to December | 28 February |
| January to March | 28 April |
| April to June | 28 July |

Different dates may apply if a registered tax or BAS agent lodges for you, so check with yours.

## How to show it in the cashflow

We build the trading lines without GST and add one separate GST line. That keeps sales and costs easy to check against the budget. The GST line then shows each BAS payment or refund in the month it's paid or received, so the bank balance still comes out right.

On a livestock farm, the GST line can swing. In a quarter with big sales, you may owe the ATO. In a quarter with heavy spending and few sales, you may get money back.

## Watch the timing

A BAS bill can land in the same month as rates or insurance, when the overdraft is already deep. A refund can also take a while to arrive after you lodge. Put each payment or refund in the month it will actually move, using your own due dates.

When you update the cashflow each month, check the next BAS is in the right month. The [monthly money routine](https://farmcfo.com.au/templates/monthly-money-routine) is a good time to do it.

### Worked example

**An invented farm, for learning only, with made-up GST figures.** A sheep business lodges a quarterly BAS.

**July to September.** Shearing and winter feed, but few sales.

| | Amount |
|---|---:|
| GST on sales | $4,000 |
| GST on purchases | $9,000 |
| **Refund** | **$5,000** |

The BAS is lodged in October and the farm expects the refund in November. So plus $5,000 goes in November.

**October to December.** The wool cheque arrives.

| | Amount |
|---|---:|
| GST on sales | $26,000 |
| GST on purchases | $8,000 |
| **To pay** | **$18,000** |

It's due 28 February, so minus $18,000 goes in February. The farm's accountant confirms the real figures.

Download the cashflow budget template: https://farmcfo.com.au/downloads/farm-cfo-cashflow-budget.xlsx

### Check your understanding

1. Why keep GST on its own line in the cashflow?
   Answer: It keeps sales and costs easy to check against the budget, while the bank balance still comes out right. Trading lines without GST match the budget. The separate GST line carries the BAS payments and refunds, so the closing balance still matches the bank.
2. In a quarter with heavy costs and few sales, what is a GST-registered business more likely to see?
   Answer: A refund. When the GST in your purchases is more than the GST in your sales, the difference can come back as a refund. Your accountant confirms the real figure.
3. Who should you ask whether a particular sale includes GST?
   Answer: Your accountant. GST depends on what's sold and how your business is set up. That's tax advice, so it belongs with your accountant.

## Lesson 4: The overdraft and your lowest month

An overdraft lets your account go below zero, up to a set limit. On a farm it carries the business between sales. You pay interest on the amount you use, and some lenders also charge a fee for having the limit there. Your facility letter, the bank's letter setting out each loan, has your real terms.

## The number that matters most

Once your cashflow is built, look along the closing balance line and find the lowest one. That's your lowest month, sometimes called your peak need.

The year as a whole might look fine. But bills are paid month by month. If the lowest month sits right on the limit, there's no room for a late sale or a big repair bill.

On a livestock farm, the lowest month usually comes just before the main sales. For cattle that might be before the autumn weaner sales. For sheep it's often just before the wool cheque. A piggery sells every week, so its low point often comes when grain prices jump, because feed is the biggest bill.

## How much room is enough?

There's no single right answer, and the bank makes its own call. A sensible place to start is room for about a month's normal payments under the limit in your lowest month. That way a sale held over by a few weeks doesn't push you past it. Then think about your own risks, such as a slow payer or a dry autumn.

## Does it swing back?

An overdraft is meant to swing. It goes deeper while costs go out, and comes back after sales. Check that your balance climbs back after the main sales. If the best point all year is still well into the overdraft, that part never clears. It's called hardcore debt. It often means long-term spending, like machinery, went on a short-term facility. Our guide to [overdrafts and seasonal finance](https://farmcfo.com.au/guides/overdrafts-and-seasonal-finance) explains what to do about it.

## Test a poor season

Now run the cashflow again with lower prices, say 15% off every sale, and higher feed costs. The [season stress test](https://farmcfo.com.au/tools/season-stress-test) does this for you. Watch two things: whether the lowest month still fits under the limit, and where June finishes. A poor year often hurts most the following year, because you start July deeper.

## Before you need it

If the lowest month is too close to the limit, talk to the bank before it happens. Options might include a seasonal increase in the limit, selling some stock earlier or putting off a purchase. Whether the bank agrees is up to the bank, but a plan on paper makes the conversation much easier.

### Worked example

**An invented farm, for learning only.** A breeding cattle business has a $250,000 overdraft limit. Its cashflow shows the account at its deepest at the end of February, $226,000 overdrawn, just before the March weaner sale. Its normal payments are about $30,000 a month.

Room under the limit is $250,000 less $226,000, which is **$24,000**. That's less than one month's payments.

If the weaner cheque came a month late, March's payments would take the account to about $256,000 overdrawn. That's $6,000 past the limit.

The owner has time to act now. Options include asking the bank early for a seasonal increase, or selling some cull cows in January to make more room.

Try the season stress test: https://farmcfo.com.au/tools/season-stress-test

### Check your understanding

1. Why does the lowest month matter more than the year's total?
   Answer: Bills are paid month by month, so the limit has to hold in the worst month. A year can finish well and still go past the limit along the way. The lowest month is where the overdraft is tested.
2. The account's best point all year is still $40,000 overdrawn. What is that $40,000 often called?
   Answer: Hardcore debt. Hardcore debt is the part of an overdraft that never swings back. It's really long-term debt sitting in a short-term facility.
3. Your lowest month sits $5,000 under the limit and the main sale could be late. What's the most sensible step?
   Answer: Talk to the bank early, with your cashflow and a plan. Raising it early, with the numbers, gives you and the bank more options than a call on the day the limit is reached.

## Lesson 5: Keeping your cashflow current

A cashflow built in July and left in a drawer is out of date by September. Prices move, sales slip and a pump breaks. The forecast is only useful if you keep it up to date.

## The monthly routine

Once a month, when the bank statement is in:

1. **Put in the actuals.** Replace last month's forecast figures with what really happened.
2. **Compare.** Put actual next to forecast for each line. The [budget vs actual template](https://farmcfo.com.au/downloads/farm-cfo-budget-vs-actual.xlsx) lays it out.
3. **Find the big gaps.** Don't chase every dollar. Look for the lines that are well off and ask why.
4. **Ask: timing or real?** A sale that came a month late is a timing difference, and it should catch up. A lower price is a real difference, and it won't come back.
5. **Update the months ahead.** If feed prices have gone up, change the coming months too, not just the one that's passed.
6. **Roll it forward.** Add a new month at the end, so you always see 12 months ahead.
7. **Check the lowest month again.** Has it moved, or got deeper?

The [monthly money routine](https://farmcfo.com.au/templates/monthly-money-routine) checklist sets out these steps. Once you're used to it, it doesn't take long.

## Keep it honest

It's tempting to make the forecast look better than you expect, especially before a bank review. Don't. A forecast that's always too hopeful gives you no warning. The point is to see trouble months ahead, while there's still time to sell early, put off a purchase or talk to the bank.

Keep a short note of the reason for each big change. When the bank manager asks why feed went up, you'll have the answer.

## Don't forget the once-a-year bills

Each time you roll forward, check what's coming in the new month: rates, insurance, registrations, a BAS payment or a loan review date. These are the bills that catch people out.

## When the gap is big

If the updated forecast shows the overdraft going past its limit, act now, not in the month it happens. Ring the bank, explain what's changed and bring your plan.

If things are very tight, the Rural Financial Counselling Service is free and independent. It helps primary producers who are in financial hardship, or at risk of it. The national number is 1300 771 741.

## It pays off at review time

A cashflow you've kept up all year, with notes, is the strongest thing you can take to the bank. It shows you know your numbers.

### Worked example

**An invented farm, for learning only.** This is the cattle business from lesson 4. Its forecast had October closing at $170,000 overdrawn. The actual figure is $182,000 overdrawn.

The gap is $12,000. Feed cost $32,000 against a forecast of $20,000, because of a dry spring. That's a real difference, not a timing one. The owner expects feed to stay $12,000 a month higher through November and December.

So the owner updates those two months as well. The February low point moves from $226,000 overdrawn to $262,000 overdrawn: $12,000 for October, plus $12,000 for each of the next two months. That's $12,000 past the $250,000 limit.

It's only October, so there are four months to act.

Download the budget vs actual template: https://farmcfo.com.au/downloads/farm-cfo-budget-vs-actual.xlsx

### Check your understanding

1. A weaner cheque came in a month later than forecast. What kind of difference is that?
   Answer: A timing difference that should catch up. The money still arrives, just later. It changes the months it lands in, but not the year's total.
2. Feed prices have risen and look like staying high. What should you change in the forecast?
   Answer: Last month's actual and the feed lines in the months ahead. A real change that will keep going needs to flow into the coming months. Otherwise the forecast hides where the overdraft is heading.
3. Why roll the forecast forward a month each time you update it?
   Answer: So you always see a full 12 months ahead. Adding a month at the end keeps a full year in view, so the next low point never sneaks up on you.

## Next step

Bank Review Pack: https://farmcfo.com.au/bank-review-pack

## Sources

- [Australian Taxation Office, How GST works](https://www.ato.gov.au/businesses-and-organisations/gst-excise-and-indirect-taxes/gst/how-gst-works)
- [Australian Taxation Office, When and how to report and pay GST](https://www.ato.gov.au/businesses-and-organisations/gst-excise-and-indirect-taxes/gst/when-and-how-to-report-and-pay-gst)
- [Australian Taxation Office, Due dates for lodging and paying your BAS](https://www.ato.gov.au/businesses-and-organisations/preparing-lodging-and-paying/business-activity-statements-bas/due-dates-for-lodging-and-paying-your-bas)
- [Australian Taxation Office, Business activity statements (BAS)](https://www.ato.gov.au/businesses-and-organisations/preparing-lodging-and-paying/business-activity-statements-bas)
- [Study Australia (Australian Government), Tax and superannuation: the financial year runs from 1 July to 30 June](https://studyaustralia.gov.au/en/work-in-australia/work-rights-and-responsibilities/tax-and-superannuation)
- [Agriculture Victoria, Rural Financial Counselling Service](https://agriculture.vic.gov.au/farm-management/drought-support/rural-financial-counselling-service)

General information only, not financial, tax, legal or credit advice. These courses are not nationally accredited training.