Maintaining adequate working capital can be difficult when commodity prices are low, even if physical inventories are average. Yet, adequate working capital is extremely important to ensure all bills are paid.
There are several ways to increase working capital and help with cash flow when prices or yields are low. Six of them are:
1. Restructure debt. Reducing scheduled term debt payments or stretching out operating debt to term payments can increase working capital by freeing up cash.
2. Sell unnecessary equipment. Selling machinery that is underutilized can generate some cash to pay down debt or help cover farm or family living expenses.
3. Cash in life insurance. Evaluate the cash value of life insurance. Some policies allow you to borrow against them for a short time, or it might make sense to purchase a cheaper term policy and cash out of whole life or universal policies.
4. Lease rather than owning equipment. This may improve working capital by lowering term debt principal payments and accrued interest. This strategy must be evaluated carefully to determine if leasing will fit the operation’s long-term goals.
5. Cut farm business costs. Make informed decisions when purchasing inputs, making repairs or paying overhead costs. For instance, review your farm umbrella insurance policy and see that you are not paying a premium for something you no longer own, and that your equipment and buildings are valued correctly.
6. Reduce family living expenses. Family living expenses are difficult to reduce, but it is essential to evaluate whether farm income can support family living. If necessary, off-farm income may be necessary to pay some family living expenses. Make a budget and stick to it.
To learn more about maintaining working capital and other financial questions, see the North Dakota Farm Management Education website. Reports can be viewed on a regional or statewide basis.
Contact information is also available for farm management educators throughout the state.
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.Fewell is the director of Farm Business Management at the Lake Region State College, Devils Lake, N.D.