7 ways to increase cash flow during hard times7 ways to increase cash flow during hard times
As COVID-19 continues to impact the health and economy of our nation, it’s time to get back to basics to safeguard our agricultural enterprises.
March 30, 2020
Last year was a tough one. I think there were a lot of us who couldn’t wait to move on from 2019 and begin looking ahead to a brighter 2020. Little did we know that 2020 would be marked with a growing pandemic, a crashing economy, a crippling work force, and the never-ending isolation from our social circles, our schools, our churches and our communities.
Combine all that with the fact that it’s been a really challenging couple of years for beef producers, and the COVID-19 crisis is the perfect storm to wreak havoc on agricultural businesses, our family relationships, our physical health and our emotional wellness.
Yet, cattlemen and women are a resilient bunch. We’ll fight for our liberties, our freedoms, our land, our livestock, our fellow Americans and this beautiful way of life.
Despite our determined attitudes and our desire to fight tooth and nail to protect ourselves from outside forces crushing our livelihoods, the fact of the matter is, our very survival relies upon how well we can cash flow through an emergency — in this case a global pandemic of an unpredictable novel virus.
Now the mainstream media may be blowing things out of proportion or we may have no idea how bad it could really get — either way, we can’t lose sight of what’s happening at home if we are to thrive when the dust settles on this crazy situation we are all facing together.
In future blog posts, I’ll address coping mechanisms for handling stress, but today, I wanted to share this article by Jack Davis, South Dakota State University Extension crops business management field specialist.
In this article titled, “Cash flow is critical,” Davis lays out seven ways we can increase our cash flow and weather these difficult storms.
While it might be hard for some to turn things around in this case, you can bet we will all become sharper with the pen and calculator when this deal is over!
Davis writes, “Cash flow budget accuracy is critical in developing and controlling the business. A four-year study of borrower’s on average over estimated revenues by 15% and underestimated expenses by 17% resulting in a 300% error in net cash flow. In order to increase this accuracy, businesses need to regularly monitor cash flow and use it to control cost and set selling targets.
"A strong practice is to keep a rolling 18-month cash flow and use this to control and adjust operations as needed. One method is to do this by quarter. Quarterly compare budget to actual, using the variances to make adjustments in forecasting and/or controlling of expenses, buying opportunities, selling targets, and then adding on the new quarter to keep the 18-month cash flow in place. This may have to be done monthly under increased uncertainty and as situations or information changes.”
His business management checklist, for operating in both strong and volatile economic conditions includes the following:
1. Know your numbers
Davis says, “Understand what is making you money and what is not. Compare your financial ratios and expenses.”
2. Price risk protection
“Market on your margins, locking in profits when available,” he advises.
3. Adapt conservation practices
Davis writes, “Check on conservation programs through NRCS.”
4. Reduce direct costs
Davis suggests we more time evaluating our top direct costs such as fertilizer and seed.
5. Cash rent
“It may not be prudent to continue sustaining losses on high cash rent farms,” he says.
6. Capital purchases
“Invest in operational efficiency and excellency,” he writes. “You may need to reduce capital purchases.”
7. Non-farm cash flows
“Manage time resourcefully,” he adds. To read the entire article, click here.
For you seasoned producers who have seen the highs and lows of this business over the years, what is the best advice you would offer to get through these tough times? How do you prepare for the inevitable pitfalls? Share in the comments section below. I’m sure I’m not the only one who could use a pep talk and a little sage wisdom for the future.
The opinions of Amanda Radke are not necessarily those of beefmagazine.com or Farm Progress.
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