Forecasting the future – Cash flow strategies for agribusiness

This article was originally written by BDO for Fresh Source Magazine’s Autumn edition in March 2025, published by Brisbane Markets Limited.

Even under ideal conditions, cash flow forecasting can be a complex process. For businesses operating in the food and agribusiness sector, effective cash flow management has added layers of complexity, but once in place, offers businesses a tool to help manage the variables associated with the industry.

Agribusinesses operate in an ever-changing environment with varying impacts that depend on where the business sits in the supply chain. The majority are exposed to challenges around shifting product demand, yield, pricing, input costs, weather events, resource scarcity in staffing and supply, interest rate fluctuations, and a general sense of economic change within the industry. This has given rise to the need for businesses to effectively, and cautiously, manage their cash. As such, cash flow forecasting has become more crucial yet more challenging than ever.

What is cash forecasting?

Cash forecasting is the process of estimating and documenting the future cash inflows and outflows of a business over short, medium, and long-term time periods. It provides an understanding of cash requirements, over a set period, which assists with making informed financial decisions to ensure the business remains financially stable.

While this sounds highly beneficial on the surface (and it is), time and effort are required to produce and maintain up-to-date and useful cash flow forecasting data, so it needs to be a deliberate exercise.

For agribusinesses, cash flow forecasting requires a unique perspective compared to other businesses in the supply chain. During seasons when cash is plentiful, and considering the ever-changing operating environment, some agribusinesses decide that the cost and time required to prepare and maintain a cash flow forecast are hard to justify.

As a result, many cash flow forecasts, if prepared, are solely for bank purposes and not used as an ongoing data point. This can result in the need for a business to urgently piece together cash flow information when circumstances change, or a crisis arises. It is also a missed opportunity for businesses to understand, articulate and challenge the key drivers of their business.

Forecasting 101

A reliable cash forecasting process is essential for effectively managing risk and future planning.

Businesses must understand the funding required for a range of potential scenarios and know which levers they have available to them to manage, maintain, and fund its operating, investing and financing cash flows.

Forecasting serves various purposes:

Short-term focus

Short-term forecasts are used to manage day-to-day or month-to-month cash requirements by identifying the amount and timing of expected cash receipts and payments. The objectives are to:

• Ensure there is sufficient cash to meet all short-term obligations and avoid the need for expensive, unanticipated overdrafts or other emergency funding
• Put short-term surpluses to optimal use by ensuring that there are no idle balances sitting in non-interest or low-interest-bearing accounts
• Identify hot spots, track variances and address issues before things get too difficult to control.

Long-term focus

The long-term focus of a forecast assists to identify structural cash shortages and surpluses over a multi-year period. This is important to allow the business to see the long-term impact of both deliberate strategic decisions and changes forced onto the business due to agriculture’s ever-changing operating environment.

Strategic alignment

Ensuring that all the stakeholders in the business are part of developing and maintaining the forecast helps facilitate communication between key persons and ensures everyone is on the same page.

The forecasting process not only articulates but also challenges the key drivers in a business. It allows for different operating scenarios to be tested to determine the financial impact and timing of day-to-day and strategic decisions. For example, supply contract pricing, introducing a new product line, crop variations, capital acquisitions and debt funding required.

The key to mastering the art of forecasting is to base it on a key set of assumptions, noting in agribusiness, they are constantly evolving. For example, variances in the pricing received, yield or quantity of product available to sell, the timeline for when stock is ready to sell, and the demand for the product once it is produced. These factors make forecasting for growers difficult, but this reinforces the importance of having a budget in place and a process to update it with the key drivers as they change.

For a cash forecasting system to work successfully, the business' stakeholders must understand its importance and buy into the process. This requires clear communication and an education process to ensure that those preparing the forecasts have access to the necessary information.

Recommendations

Cash forecasting is an invaluable tool for agribusinesses, but only if it is tailored to meet the specific needs of the business and is:

• Timely (and regular)
• Prepared using reliable base data, but understanding it is likely to change
• Able to be back tested over time to improve accuracy.

A good cash flow budget will enable you to:

• Have a plan with assumptions for different scenarios given the evolving nature of agribusiness. Considerations could include weather events, pricing, access to labour and resources, and the availability of machinery
• Document a plan for both short-term and long-term, and effectively communicate it to other key stakeholders of the business to ensure alignment
• Easily update any of the variables to see the impact on your short-term and long-term cash balances.

This will ensure that the time and monetary cost of preparing each forecast is justified and that the forecasts are delivering value to the business and its key decision-makers.

For businesses experiencing disruption and looking to improve the accuracy of their forecasting; speaking to an expert in cash flow management and forecasting will be vital to integrating tailored cash flow management strategies to improve cash flow position and viability of the business.

How BDO can help

Should you require further advice, contact BDO’s food and agribusiness experts who bring extensive experience in a range of advisory and tax services tailored to the agribusiness sector and understand the unique circumstances of growers, wholesalers and retailers.