Blog
The Farm Made a Profit - So Why Is The Bank Account Empty?
23/07/2026
Every year around this time, the same conversation happens in our office. A client sits down, looks at their annual accounts, sees a healthy profit at the bottom of the page and asks the obvious question: "If we made that much, where is it?" It's a fair question. And the answer isn't that anything has gone wrong — it's that profit and cash are two different things and your annual accounts are only telling you one of them.
Profit is an accounting result. Cash is what's in the bank.
Your profit and loss statement records income earned and expenses incurred for the year. Your bank account records money actually moving. The two overlap a lot — but not completely — and it's the gaps that catch people out. Plenty of dollars leave your account each year without ever appearing as an expense. And some "expenses" in your accounts never involved cash leaving at all. Once you know where those gaps are, the mystery usually solves itself.
The usual suspects
Principal repayments
This is the big one for most farming businesses. Interest on your loans is a deductible expense — it reduces your profit. Principal repayments don't. They reduce what you owe the bank, which is great for your balance sheet, but they're invisible in your profit figure. If you've paid $150,000 of principal off the farm mortgage this year, that's $150,000 of real cash gone — and your accounts show a profit as if it never left. On top of that, you're paying that principal out of after-tax money, so the cash required is even more than the repayment itself.
Capital purchases
The new tractor, the ute, the upgraded plant, the effluent system — these all need cash (or new borrowing) up front, but they don't hit your profit and loss as a lump sum. They sit on the balance sheet as assets and get depreciated over a number of years. So the full cost left your account this season, but only a slice of it reduced this year's profit. The rest catches up gradually.
Tax
Tax has a habit of arriving on its own schedule, not yours. Provisional tax instalments, terminal tax from last year's result, GST, ACC levies — these often relate to income earned months (or a whole year) earlier, and they can land in the quieter parts of the season when the milk cheques are thin. A good year followed by a tax bill in a lean stretch is one of the most common causes of cash pressure we see.
Timing
Farm income is lumpy. Milk payments follow the payout schedule, livestock sales happen when the market and the season line up, and the wool cheque comes when it comes. Meanwhile wages, feed, fertiliser, insurance and repairs tick along every month regardless. Even a genuinely profitable farm will have months where more goes out than comes in. That's not a problem in itself — but it becomes one if there's no working capital buffer to ride it out.
Drawings
The farm usually funds the household as well as the business. Mortgage payments on the house, school fees, vehicles, groceries, the odd holiday — none of it appears as a farm expense, but all of it comes out of farm cash. Drawings have a way of creeping up quietly. A regular check on where they're sitting relative to the budget is one of the simplest financial disciplines a farming family can have.
Money tied up on the farm
Extra livestock carried over, supplement in the pit, fertiliser on the paddocks — these all represent real value, and they may well be the right decisions. But they've converted cash into farm assets. Your wealth has grown; your bank balance hasn't.
Why this matters
A business can be profitable on paper and still run out of cash — and it's the cash that pays the bills. Farms with healthy cash flow can pay suppliers on time, jump on opportunities when they come up, handle the unexpected breakdown or weather event, and get through the tight months without stress or expensive short-term borrowing. The most resilient farming businesses we work with watch their cash position as closely as they watch production. Not instead of — as well as.
Questions worth asking
Your annual accounts are a valuable tool, but they're a rear-view mirror. To understand where the business is heading, it pays to ask:
None of these are complicated questions. But answering them properly — with real numbers, not gut feel — is often where the biggest improvements come from.How CMK can help We work with farming businesses across Taranaki to look past the year-end profit figure. That means mapping where your cash is actually going, budgeting around your seasonal income pattern, forecasting tax so it never arrives as a surprise, and reviewing your debt structure to make sure it fits the business. A profitable farm is a good thing. A profitable farm that knows where its cash is going — that's a business with options. If your accounts and your bank balance are telling you two different stories, give us a call. It's usually a shorter conversation than you'd expect.
06 765 6178 | 
cmk@cmk.co.nz
