Is Your Working Capital Working?

You can just hear when a machine is working. It's the sound and the feeling that you're firing on all cylinders.

Conversely, you know when the sound is not right. You may have needed to cut corners because occasionally that's what the season dictates – and you're concerned that something could go very wrong before it's all over.   

It's that way financially as well.

While your working capital isn't going to warn you with a big, loud clunk that it's not working correctly, there are other signs to indicate that it is not at a healthy level. Some of these are:

• You are overly stressed when something doesn't go your way financially.
• You stop adhering to your business plan.
• Volatile markets cause you a lot of anxiety.
• You waver constantly when making big decisions because you don't have a good grip on your financial stability.

You don't have to feel lost. We are living in unprecedented times in agriculture. There are opportunities to build a nice nest egg, helping you weather the tougher challenges that may lie ahead. Your working capital shouldn't be making bad noises now. 

The truth is that we don't always know what we should be doing or the right way to get started on that path. The look and feel of agriculture has changed tremendously and we simply can't follow the strategies of the past and expect success. We have to adapt. Here are some keys to getting on the right track if any of the previously mentioned symptoms sound too familiar. 

• Know where you are financially. 
• Take the time to understand your metrics, and ask for help if you don't know what they are.
• If production is your number one passion, find an advisor in the financial arena. 
• Look ahead to the future and paint a picture for yourself and your farm.
• Build a map of how you plan to get there.
• Consider the "what ifs…" - things that could detour you from your plan.
• Write a contingency plan for every "what if…" scenario.
• Become a student of finance and marketing.
• Understand the best ways to manage all of the risks on your farm.
• Get your working capital to 40%.

Farming is always about production, in addition to the complex management of the total operation. Listen to your operation. What is it telling you? Getting your farm firing on all cylinders just takes a plan, some financial tools and a little 'mental' elbow grease.