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How to stop the “cash crunch” from hitting the farm

Cash flow planning proactively manages the gap between cash in, cash out.

Have you ever experienced a surprise “cash crunch” in your operation? It can happen when cash rent, machinery payments and several other cash needs hit you all at once. Sometimes it can catch a farm leader off-guard and unprepared.

If the timing of your payments and expenses aren’t currently aligned with the way your farm is generating cash, it may be time to re-evaluate and retool your cash flow planning process.

Check the system

Maybe there’s a situation where in the next five days, you’ll need to turn a certain number of bushels into cash. There are certainly tools to help accomplish that, perhaps without giving up ownership right away. But when we feel like we must react in the moment, it can be a somewhat panicked scenario.

Whenever we’ve been more reactive than proactive, we can examine our current system that led us into that situation. One simple way, from a business management standpoint, is determining when cash is flowing in and out of our operation on a monthly basis.

Getting a high-level cash flow plan in place based on this information can help give us more control and a greater ability to plan and act accordingly. The plan also offers a dashboard window of sorts into how our business is trending over the course of time.

Plan it out

Farm leaders might already be doing some cash flow planning in their head or even on paper. But to get the best data, you need to be able to lay out exactly when cash will be flowing out of your operation.

For example, if you have $1 million in expenses, when exactly, by month, is that heading out the door? This means laying out the exact timing of the “big rocks” of expenses like cash rent payments, machinery payments, input costs and insurance premiums.

We also need to get clear on the other side of the equation as well – the cash flowing in to the farm. When will our operation be able to generate cash? Then, how is that going to cascade into a merchandising plan? Here are a few elements to think about as part of your plan:

  • Best timing for your operation to haul grain
  • Whether basis contracts will help generate cash
  • Whether inventory loans will help generate cash
  • Ways to be proactive in sales plans to capture carry and best utilize the farm’s bins

While cash management seems like a simple topic, if you’ve ever felt the “cash crunch,” it may be a signal that it’s time to evaluate and improve the system. You can talk with an advisor for the farm for more on how to create and use a monthly cash flow plan in your operation.

 The opinions of the author are not necessarily those of Farm Futures or Farm Progress.
TAGS: Management
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