Moe Russell, Farm Journal columnist, reminds farmers to boost working capital levels during high profit years.
A farmer’s working capital is defined as the wealth that is used in day-to-day operations. It is calculated as current assets minus the current liabilities.
Moe Russell, Farm Journal columnist and president of Russell Consulting, says as a rule of thumb, your working capital should be equal to or greater than half your annual expenses (including debt payments and living costs or owner draws).
"We like to see that as 50% or greater. If you farm over 5,000 acres, it should be closer to 75% of annual expenses."
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Working capital is the first shock absorber to get you through the financial bumps.
As margins decrease, it will be more difficult to obtain credit. Analyze your debt structure and build as much working capital as possible.