Beyond the Bottom Line: 8 Ways to Strengthen Your Cash Flow
March 25, 2025Beyond the Bottom Line: 8 Ways to Strengthen Your Cash Flow
March 25, 2025April 26, 2025
Why Switching from Cash to Accrual Accounting Might Be the Best Financial Decision You Make
By Andrea Wright, Director of Accounting
Most farms start out using cash accounting, and that’s perfectly fine when things are just getting off the ground. With cash accounting, you record income when you receive cash and expenses when you pay bills. It’s simple to understand, easy to manage, and works well when your business is still small and transactions are straightforward.
But as your farm grows—especially if you’re selling direct to consumer, hiring employees, managing inventory, or planning to invest in infrastructure or expansion—cash accounting can start to fall short. It may no longer provide the information you need to make smart, timely decisions.
That’s where accrual accounting comes in. Instead of tracking money only when it moves in or out of your account, it records income when it’s earned and expenses when they’re incurred, regardless of when cash actually changes hands.
Switching from cash to accrual is more than just a bookkeeping change—it’s a shift in how you understand your business and plan for the future.
1. It Tells You the Real Story of Profitability
Cash accounting tracks income when you receive payment and expenses when you actually pay a bill. That works fine when things are simple. But once you’re operating at a larger scale, it can give you a distorted view of your financial health.
Let’s say you prep for a big holiday sales push in November and December. You spend on ingredients, packaging, marketing, and staffing in the weeks leading up. The cash comes in from customers in mid-December, but you don’t pay your vendors until January. In a cash accounting system all those costs hit in the new year, making your December look more profitable than it actually was.
Accrual accounting matches revenue and expenses to the period when they actually occurred. You can track whether your sales are covering the cost of goods sold, and whether you're making or losing money in each season, channel, or product line. This gives you a much clearer view of your margins and long-term sustainability.
It’s not just about knowing whether you’re “in the black.” It’s about understanding where you’re making money and where you might be losing it.
2. No More Surprises from “Phantom Profit” or Delayed Costs
One of the most common frustrations with cash accounting is that it can show you a profit that isn’t real—or make a good year look worse than it was. We see this all the time: a farm finishes the year feeling strong, only to get hit with a massive invoice in January for expenses that actually relate to the previous season.
That $300,000 invoice? Under cash accounting, it’s not in last year’s books. Your year-end numbers look amazing, but they’re not accurate. Then the next year starts with a big hit to cash flow and a financial picture that looks worse than it should.
These timing issues make it difficult to compare performance across years. Was last year better than the year before? Did your margins improve? With cash accounting, those answers are muddy at best.
Accrual accounting assigns income and expenses to the periods in which they occur, creating a much more consistent, apples-to-apples view of your business over time. This consistency helps you track progress, set better goals, and build a more resilient operation.
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Pro Tip: Use software that supports accrual accounting from the start. Even if your business is small and straightforward, using a system like QuickBooks Online makes it easy to switch to accrual when you're ready. It’s much harder (and more expensive) to retrofit good records later. Fill out our form to get 20% off QBO (for life)!
3. It Helps You Borrow and Plan with Confidence
While cash accounting can offer short-term tax advantages, it doesn’t always support your long-term goals. If you're looking to borrow, raise investment, or apply for grants, your financials need to tell a clear, reliable story.
Most lenders and financial partners rely on accrual-based financials when assessing risk and determining eligibility. They want to see how your business really performs—not just how much cash you had at a particular moment.
Without accrual accounting, your books may show inconsistent or misleading trends, making it harder to build trust with funders. You could be running a strong, healthy business, but if the financials don’t reflect that, opportunities can slip away.
Switching to accrual gives you the tools to forecast cash flow, anticipate slow seasons, and make smarter decisions about when to invest, hire, or scale back. It builds confidence in your own leadership—and shows others that you take the business seriously.
4. It’s a Strategic Shift—Not Just an Accounting One
This isn’t just about bookkeeping. It’s about stepping into a leadership role in your business with full transparency and better tools. Accrual accounting helps you move from reactive to proactive.
It allows you to:
- Understand your true profit margins
- Analyze performance by product, market, or channel
- Identify which seasons generate the most return
- Plan ahead for labor, inventory, and infrastructure needs
- Communicate clearly with banks, investors, and partners
- Run your business with more confidence and fewer surprises
It’s not about complexity for the sake of it. It’s about clarity. When your books tell the true story of your business, you can lead with purpose and build with intention.
You Don’t Have to Do It Alone
If you’re thinking about switching to accrual, you’re already asking the right questions. It might feel like a big change, but it’s a powerful one—and you don’t have to go it alone.
We’re here to help with setup, systems, and support. Whether you’re starting the shift now or planning for next season, we can walk you through it step by step.
Accrual accounting isn’t just for big corporations. It’s for any farm or food business that wants to grow with clarity and confidence.
Let’s make your numbers work for you—so you can focus on what you grow best. Book a time to meet with our team.
