4 Ways to Bolster Working Capital

October 30, 2018 04:11 AM
 
Are you needing to borrow a larger line of credit this year? Do you wish you had more financial cushion?

Are you needing to borrow a larger line of credit this year? Do you wish you had more financial cushion? Develop a working capital improvement plan, encourages Chris Barron, a financial consultant at Ag View Solutions, an Iowa farmer and a Top Producer columnist.

“To improve working capital, there are only two things you can do: spend less money or increase productivity,” he notes. “Paying attention to details isn’t an option any more—it’s an absolute necessity.”

Barron suggests looking at these expense improvement options:

1. Enact a purchase freeze.

Let everyone in the operation know no major purchases can occur for a set period of time. Agree that any expense over $500 must be approved by the management team.

2. Take a hard look at compensation.

You might have to trim salaries a bit in years like this or consider not replacing team members who have left the operation. If you hire part-time help, see if you could get by with your current team instead of outsourcing jobs.

3. Look at restricting debt.

If working capital is low, review your loan options. Be sure to talk with your lender about this decision so they understand why you want to restructure debt (and that you’re not just covering up losses).

4. Liquidate unused machinery.

Yes, selling machinery is tough right now, as equipment costs have gone down. But on the other hand, there’s cash sitting in assets that are not generating any revenue. Even unloading less-expensive equipment can add up to decent savings.

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Be Financially Fit in 2019

Financial fitness—just like physical fitness—requires desire, willpower and consistency. To slim your spending and pad your wallet, you need to crunch your current numbers and set realistic targets for future costs and profits. Projections for 2019 show continued financial strain for farmers. Instead of playing defense, use the next few months to create an offensive strategy to push you in the profit zone. 

Budget Basics: Forecast realistic costs and expenses to increase financial performance 

To Buy Or Not To Buy? Weigh purchasing new equipment or continuing to repair older equipment

Talk It Out: Ask your lender these questions before the end of the year

 

Top Producer Summit

Join Top Producer at the 2019 Top Producer Summit, which takes place Jan. 15–17, Chicago, Ill., and includes the Top Producer Seminar, Executive Women in Agriculture, Tomorrow’s Top Producer and Legacy Project Conference. Learn more and register at TPSummit.com.

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