How to handle a cash crunch on the farm
When revenue challenges hit, what’s the best approach to work through them?
Experts say many farms that experience revenue slow-downs can tighten finances to find at-home solutions.
For example, in 2019, eastern and western crop producers battled inclement weather, resulting in lower yields and millions of unharvested Prairie acres.
New Brunswick farmer and consultant Cedric MacLeod adds high feed prices and packing challenges in Ontario dragged down the profitability of eastern Canada’s cattle sector.
One step you can take to get through the crunch is reorganizing debt to make payments easier.
One step you can take to get through the crunch is reorganizing debt
Start with reviewing high interest loans, says Carol Kruck, BDO senior accountant.
“With interest rates much higher on credit card debt, can you roll it into a bank loan instead?” Kruck asks.
She advises going through credit card statements item-by-item.
“Are there spending landmines, like online purchases, eating out or cellphone charges, that can be curbed until you get a better handle on your finances?”
Costs and cash flow
Farmers may also find it helpful to review variable costs to identify ways to stretch their dollars, says Sharon Ardron, a Manitoba Agriculture farm management specialist.
“Are there costs that can be adjusted by looking at booking seed early to take advantage of lower prices that may be prevailing in the market?” Ardron asks.
Inventory and unproductive assets should also be reviewed to alleviate cash flow challenges, says Kruck.
“Do you need to rework your marketing plans and sell inventory? Are there unproductive assets you can sell to generate cash flow?”
Also, prioritize and budget business and personal debt obligations, Ardron says.
Challenging growing seasons may require interrupting planned equipment upgrades.
A more conservative approach than buying new is increasing repair and maintenance estimates to help preserve working capital and reduce debt obligations for the business, Ardron says.
She stresses working capital is critical to a business’s short- and long-term viability, and it’s crucial that farmers identify priorities.
MacLeod agrees and says unnecessary equipment replacements or upgrades during lean times should be avoided, noting the return on the asset should first be assessed before moving forward.
Revenue challenges are bound to happen in any business, but when the matter hits on the farm, experts say tightening finances close to home can offer the best solution. Review high interest loans and spending priorities, as well as identify potential cost savings and areas that can generate some extra cash flow, experts advise.
Article by: Richard Kamchen