In my last blog, I suggested that one of the key steps to achieving successful results in your operation is measuring your Net Cash Flow each and every month. I am such a firm believer in this process and its numerous benefits, that I complete it monthly for every Client.
Why am I such a huge believer in the benefits of this process? Yes, it provides us with a clear indication of whether you are making money or not, but it also has other benefits. It will help you steer clear of any financial “surprises” such as getting to the end of a quarter, or worse yet, the end of a financial year, only to be shocked by how much a particular expense item went up. Rather than being forced to explain this to your banker, wouldn’t it be better to catch this sooner and correct it before it becomes an issue? I see this as one of the largest benefits of regular Cash Flow Analysis.
If you think about it, this type of financial hurdle will also be easier to correct if we catch it early. If some expense is out of line six months into the year, it can present a real challenge to get it back into alignment before year end.
In the Cash Flow Analysis that I provide my Clients, there are other items that can prove to be beneficial. The Variance from Budget can clearly be good information to have at hand, i.e., how large of a problem is this variance.
I also feel it is helpful to know what your Break-even levels are for milk pounds per cow per day, feed costs and milk price. Essentially, these tell you how much improvement you need to make to get back on track financially. This information can be essential to your overall game plan and success.
I often see this demonstrated when producers go from 70-72 pounds per cow per day to levels above 80 pounds. Sometimes they worry that their feed cost per cow per day may go up fifty cents, say 6%. However, at any given milk price, your revenue should increase by 11% (80/72 e.g.), representing a healthy marginal improvement.
Additionally, as you make more hundredweights of milk, you will also notice another benefit. The Cost/cwt for every one of your Fixed Costs will also improve. This can provide you with a considerable improvement to your Net Margin, and that, my friends, is the name of the game, when it comes to Cash Flow Analysis.
If you would like to learn more about Cash Flow Analysis and take full advantage of this process, just shoot me an email stating “NLT Workshops,” and I will be sure to include you in future invitations.
Let’s take your business to the Next Level!