Two things top managers focus on are working capital and cash flow, says Keith Torgerson, North Dakota Farm Business Management instructor, Wahpeton, N.D.

Working capital is the difference between current assets and current liabilities, and is generated from net farm income.

“Average net farm income last year in the Red River Valley at $89,489, and in the state as a whole at $28,600, was not large enough to cover all of the principal due, family living and income taxes. Since the net farm income did not cover all of these expenses, the business did not cash flow, and it would need to dip into its working capital to pay current obligations,” he says.

MONEY MANAGEMENT: With net farm income declining, increasing working capital will be key to riding out the downturn.

Current assets include cash, marketable grain and livestock inventories that will be sold within a year. Selling assets such as machinery, land or breeding livestock to generate cash would not be included in the current assets or count toward the farm cash flowing for the year. These capital sales may help next year’s cash flow if they were used to pay off a loan or reduce a payment.

Current liabilities are those that are due within one year such as operating notes, yearly principal payments and accrued interest payments on term debt, etc.

Some things Torgerson says to look at to increase working capital are:

1. Debt structure. Do you need to restructure your debt load to reduce scheduled payments?

2. Asset management. Are you maximizing your assets? Are there assets that are not used enough to justify their continued ownership?

3. Asset acquisitions. Payments are due each year, regardless of your net farm income. Do you need to own that asset?

4. Cost reduction. Do you have expenses that are not necessary?

5. Leasing vs. owning. Can working capital be freed up by a lease versus an ownership arrangement?

6. Downsizing. With shrinking margins, is it time to give up marginal land or assets you are not using? Be sure to complete an enterprise budget specific to each farm. What enterprises give you the best net return?

7. Family living. Family living expenses can be as “sticky” as cash rents. Does present day net farm income support the amount spent for family living or nonfarm outlays?

To view various farm financial numbers and ratios, as well as crop and livestock enterprises, on a regional or statewide basis, visit ndfarmmanagement.com. Various regional and state reports along with visual presentations are available to view or download at no cost. Contacts for NDFBM instructors and information about program locations are also available.

For more information on the NDFBM program, contact Aaron Anderson, state supervisor for agricultural education, at 701-328-3179. The NDFBM program is sponsored by the North Dakota State Department of Career and Technical Education.

Source: NDFBM