Cash Profit Feeds Your Family, Not Revenue or Turnover
As the cost of running a business continues to rise, the pressure on business owners, particularly those in the agricultural industry, is intensifying. At Sprout Agribusiness, we work with over 2,000 clients across the farming and Ag supply chain, and one consistent theme we’re seeing is the strain around working capital limits. Whether it’s machinery dealerships, grain businesses, or livestock producers, the struggle to manage costs effectively is impacting everyone.
The Rising Costs of Doing Business
One of the most concerning trends we’ve noticed is that pre-tax operating profits are dropping below 5% of revenue for many businesses. This decline isn’t due to lower revenues but rather a result of increasing costs that haven’t been managed early enough. While there is often a focus on production levels, turnover, and commodity prices—whether it’s livestock turnover, crop yields, or commodity prices—the reality is that rising costs are eating away at profits.
Cash Profit Over Turnover
As businesses scale and grow, they require more cash year after year. It’s crucial to understand that cash profit, not turnover, is what sustains your business and feeds your family. While high revenue numbers may look impressive, if your cash flow is tight and costs are climbing, your business could be headed for trouble.
At Sprout Agribusiness, we’ve seen that businesses that fail to stay on top of their “cash in bank” position and don’t continuously re-forecast are putting undue pressure on their banking limits. A sustainable profit, year in and year out, should always be the goal.
Top 5 Tips for Building Cash Profit
- Set a Core Cash Target: Ensure you always have a clear cash profit target for your business.
- Focus on Profitability, Not Turnover: Prioritize profits over revenue. A growing business needs more cash, not just higher turnover.
- Know What’s Profitable: Identify what parts of your business truly drive profit. It’s not just about having the best-looking livestock or highest yields—it’s about what’s left in the bank.
- Go Beyond Financial Statements: Don’t rely solely on your financial statements. Use a range of tools and insights to manage your cash flow and profitability.
- Communicate Regularly: Collaborate with your entire team on a monthly basis to stay on top of your cash flow and ensure everyone understands the financial position of the business.
Need Help?
If managing your business’s cash flow feels overwhelming, or if you want expert advice on improving your profitability, contact your nearest Sprout Agribusiness advisor. We’re here to help you focus on what really matters—your cash profit.