‘Question a farmer on finance … at worst you will get a glassy-eyed look of total non-comprehension.’
Question a farmer about the four strokes of an internal combustion engine, and you will get an answer with speed, interest and passion.
Now question a farmer on the more important business matters of finance and accounts. At worst you will get a glassy-eyed look of total non-comprehension.
At best you might find a financier turned farmer who knows what you are talking about. Just as being mechanically minded helps with managing machines, being financially literate helps with managing a business.
Let’s make a start by having a quick look at the interaction of the three business scorecards, the Income Statement, the Balance Sheet and the Cash Flow. These three reports should mesh like three well oiled gears.
Take a simple example like the sale of a bakkie-load of potatoes from the farm packshed to a hawker for R1 000 cash. Cash changes hands. Cash flow is engaged. The paperwork will look like this (see Figure 1). Follow the diagrams to see how the situation changes when credit is involved.
Income and Expenses get on to the Income Statement and Balance Sheet when they are earned or incurred. They only get on to the Cash Flow when cash changes hands.
Note the two important lessons learned from this simple example, given below the diagrams.
Contact Peter Hughes on (013) 745 7303 or e-mail [email protected].
