It has been, and is looking like it will continue to be, a very challenging couple years for grain and oilseed producers as well as those in the cattle and forage industries. Financial management, specifically managing working capital, cash flow, debt and creditor relationships will be very important to ensure farm families are able to weather this storm successfully. If farm transition discussions are happening during this time, it can add an extra layer of stress and uncertainty for the family as well.
Working Capital and Cash Flow: A quick way to take a pulse check and a get an indication about the working capital and cash flow situation is by calculating your sources and uses of cash. Analyzing your short-term credit requirements and measuring that against your options to service those requirements, will help you identify areas of strength, as well as areas they may need to be amended, to ensure you will have adequate timing of cash flow over the next 12 to 18 months.
Working capital (current assets less current liabilities)
Operating loans (authorized amount)
Crop input lines (authorized amount or planned crop input expenses – whichever is less) Cash advances available
Land rental expense
Other drawings (transition payouts, etc)
Debt-service requirement (if current portion of long-term debt is included in current liabilities, do not double count by including them here)
Your operation’s cash flow position is the net total of the sources less the uses.
Be mindful of the type of credit available and if this will sufficiently meet your needs without sacrificing profit. Consider your actual working capital and the timing of marketability. If there is a delay in your ability to deliver, or you choose to store your inventory longer in search of a stronger market, do you have sufficient cash resources, or available credit to manage this successfully?
Identifying an area of concern is the first step in working towards a solution. Although there are many similarities, every farm situation is unique and a strategy that considers the goals and vision of the farm, in addition to other financial indicators, will yield the best results and solution for your business. Taking a pro-active approach to ensuring you have sufficient working capital and cash flow will reduce the risk of cash flow shortfalls and help to strengthen relationships with creditors and suppliers, in addition to giving you peace of mind and reducing stress for you and your family.
Phone Coaching: In addition to consulting, and family communication coaching engagements, FMI offers phone coaching packages. Contact me for more details.
Peer Group: We are accepting applications for peer group participants. For more information or to apply to be added to the waiting list, please contact me.
As a Farm Management Consultant, a Certified Financial Planner (CFP), a Certified Agriculture Farm Advisor (CAFA), and a Farm Debt Mediation Service Financial Expert, I provide management consulting services and coaching to farm families; helping them become more successful in their businesses, relationships and lives. I have a background and specialize in farming, family communication, financial planning, intensive debt management, strategic business and transition planning and would be pleased to talk to you about the specific challenges you are facing.
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I wish you and your family to have a safe and healthy harvest season with favourable weather and a late frost.