Why Your Bank Account Doesn’t Match Your Profit – A Rural Perspective
Have you ever met with your accountant and been told your farm made a decent profit… but then looked at your bank account and thought, “Where’s all the money gone?” Maybe you’ve even been congratulated on a great season, yet you’re still wondering how you’ll pay the staff next week or cover the next round of fertiliser.
You’re not alone. One of the most common frustrations we hear from farmers is that cash in the bank doesn’t seem to line up with the profit figure. And that’s because cash and profit are very different things. Here’s why:
1. Tax Payments
Even if your profit is after tax, the actual payment timing is different. You might be due a refund or owe more tax – either way, the cash side doesn’t match up with the paper figure.
2. Buying Gear or Machinery
That new tractor might have wiped out your cash, but it’s not an ‘expense’ on your profit and loss. It shows up as an asset on your balance sheet. So spending big doesn’t automatically reduce your taxable profit.
3. Selling Assets
Selling off a ute or surplus gear gives you cash – but doesn’t boost your profit. It reduces the value of your assets instead.
4. Drawings for Living Expenses
Paying yourself from the farm isn’t a business expense – it’s money you’re withdrawing from the business. It doesn’t show up in profit, but it sure affects cashflow.
5. Debtors (People Owing You Money)
Your profit includes everything you’ve invoiced – even if it hasn’t been paid yet. So if you’ve sold livestock but haven’t been paid, your profit looks good… but your bank account doesn’t.
Good news: collecting those invoices faster puts cash in your pocket without increasing tax.
6. Stock or Work in Progress
If you’ve built up stock (like silage, wool or unsold animals), you’ve spent the money but haven’t made the sale yet. That means your profit stays the same, but your cash takes a hit.
7. Creditors (People You Owe)
If you’ve had a big month of expenses but haven’t paid them yet, you’ll show lower cash and higher profit. But remember – delaying payments isn’t a long-term cashflow strategy. Suppliers need paying too.
8. Loan Repayments
Principal repayments on farm loans reduce cash but don’t touch your profit figure – only the interest portion shows up as an expense.
9. Depreciation
Your accountant will include depreciation for vehicles, plant, and infrastructure as a non-cash expense. It reduces your profit on paper, but doesn’t affect cash in the bank.
So What Should You Do?
The best way to truly understand the cashflow of your farming business is to work with someone who gets the rural sector. Let’s sit down together and create a simple cashflow plan so you can make better decisions throughout the year – especially heading into the quieter winter months.