Farms Flows - Bees, Cash and Confusion


Courtesy of thedailygreen.com

We were watching the movie Colony last weekend (highly recommended) and I was inspired to follow-up on a topic that I think confuses the heck out of most people. Cash vs. Accrual Accounting. Don’t be alarmed by the word “accrual”, you don’t even need to know what it means to understand the concept. Press on! 

Colony is about beekeepers. Not just any beekeepers, these are hardcore beekeepers. They perform a task that I never knew existed. These individuals literally manage and care for thousands of bee hives and transport them all over the country on giant flat-bed trucks to pollinate various crops (almonds, blueberries, etc.). I could write a whole post about how cool that is and how that’s just one more critical component of the food supply chain that most people never think about, but I’ll save it for another day.

Today Cash vs. Accrual accounting rules the roost (or hive?). In the movie
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Farm Flows - Leveraging Your Fixed Costs

 
I think a lot about how we’ll manage the cash flows at Little Seed during the first few years of operation. It’s an extremely important topic because it can literally make or break your business... no matter how well you appear to be doing. Fast growing, seemingly profitable companies go under all the time and the culprit is typically poor cash flow management. One way to prepare for (and hopefully avoid) that unfortunate circumstance is to understand your fixed and variable costs. In this post I’ll cover what that means and how it can impact your business and in a later post I’ll expand into how it applies to various circumstances (debt load, working capital needs, etc).
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Farm Flows - Understanding Gross and Operating Profit

Image from cover of “Slow Money”, by Woody Tasch.

If you’ve read our first blog post, you probably know that I have a background in finance. Whether I like it or not, numbers are always on my mind. That means I think a lot about Little Seed and how we’ll manage to stay alive in an industry like farming, which is notorious for bedeviling even the most astute financial planners. Probably the most important aspect of our financial plan is understanding our costs and our cash flows. Not just thinking about them, but actually writing (typing) them all down and planning a few years ahead. I can't emphasize how important it is to actually sit down and write it out. Until you do, you won't know what you don't know.

Money management is a complicated (and often sensitive) topic, so I’ll try to keep this particular discussion high level and offer some ideas for
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