The overall level of revenue that you generate will be influenced by a number of factors, including the split between direct sales and trade sales. Selling direct is typically more profitable because you cut out the middleman and get a better price, although it often involves a lot more work in getting your produce into a saleable form (for example, cutting down carcases) and in finding and maintaining your customers.
So although the price you receive with trade sales to wholesalers, large retailers and processors may be quite a lot lower, you are able to sell your produce in bulk to just a handful of buyers without having to add value to it.
To prepare your cash flow, you will need to estimate how much income you will receive over the next twelve months. To do this you will need to work out what quantity of your products you are likely to sell and at what price. It's also extremely important that you fully consider the timing of receipts as this can vary widely depending on what you produce. For example, an organic milk producer would receive regular payments for milk produced throughout the year whereas a beef finisher may only receive payment once a year or even once every two years, tying up working capital for a significant length of time.
'Cash sales' means all income from your main business activity which is received at the time of sale. Although some customers may pay you in cash, remember that Cash sales also include:
- debit and credit card payments (if you decide to accept them)
- electronic payments (you may have large, regular customers who prefer to pay you in this way)
Cash sales may include direct sales that you make at the 'farm gate', for example through your own farm shop; sales you make through box schemes; sales that you make through your own website; sales that you make at a farmers' market; or sales that you make to local shops and restaurants where you require them to pay at the time of delivery/collection.
Cash sales can also include any animals that you sell through livestock markets, many of which pay vendors on the day of the sale or, if not, only a few days afterwards.
Depending on how you're planning to sell your produce, you may have a fairly high level of Cash sales or you may have none at all.
Cash from debtors
Sales where you invoice the customer and receive payment at a later date are known as 'Cash from debtors'. (For example, with a cereal crop sold off the farm in August you may not receive payment until one or two months afterwards.) If you're planning to sell the majority of what you produce into the traditional wholesale/processing channels then it's likely that most or all of your sales will be Cash from debtors.
Is organic farming the right choice?
If you have not already converted, give some thought to whether conversion to organic farming is the best option for you. Some of the points to consider are:
- the type of farm you run and its suitability for conversion to organic
- whether you will be able to achieve acceptable yields
- whether you will be able to achieve a price premium and if so, whether the premium is sustainable in the future
- whether you are confident that you will find a market for your produce at the price you need to achieve - bear in mind that overall demand for organic produce fell sharply as a result of the economic downturn that began in the late 2000s, although it has since stabilised and returned to growth. By 2018, after six consecutive years of growth, the UK market for organic products was worth £2.2bn, its highest ever, representing 1.5% of the total UK market for food and drink
How you will market your produce
The way in which your produce is marketed may have a significant effect on how profitable it is. Some things to consider are:
- the channels you will sell your produce through - for example, you may look at ways in which you can sell direct to the customer to maximise your own profitability
- whether you will try to add value to your crops and livestock by processing it. For example you might make chutneys from your vegetables, ice cream from your milk or pre-prepared meals from your meat
How the organic market is performing
It is important that you keep abreast of developments in the market so that you know:
- the level of demand for organic produce, and specifically the level of demand experienced by different types of retailer.
- price fluctuations in the market
- any changes in legislation
- the level of imports and how they affect the home market
Recent Soil Association research has found that, while sales of organic produce in the major supermarkets have been fairly static in the 2010s, sales made by independent retailers through box schemes and online have all grown quite strongly, fitting in well with the appeal of local, fresh, farm-to-door deliveries with known provenance. The trend towards online shopping for organic food means that home deliveries now account for 13% of the organic market and are expected to reach 25% in the near future.
To help with your decisions, click on the checkpoints for guidance. Once you have worked out a Cash sales figure add it to the relevant field in your cash flow forecast.