COVID-19 has displaced millions of people across the country, affecting how they live and provide for their families. With non-essential businesses closing and consumer spending decreasing, planning for the future of your farm operations is essential than ever.
Even before the pandemic, the state of agriculture has been affected by the shortage of labor and consumer demand. Although the US Department of Agriculture has provided a relief program for farmers and ranchers, managing finances is critical to helping your business survive.
Examine Your Existing Capital Structure
Evaluate your existing liabilities and working capital. If you’ve taken out an agricultural bank loan, discuss with your lender for alternative options to lower payments or increased working capital to fund your operation throughout the uncertainty.
Discussing how your lender will take care of you during the crisis can keep your farm running in the long term.
Forecasting Your Cash Flow
Examine your current financial ratios and forecast what the next couple of months will look like for your operation. You can then choose your financing options to stretch your cash flow.
Your cash flow forecast should include the following:
- Inflows or your receipts
- Outflows or your payments for expenses
- Opening bank balance at the beginning of the period
- How your cash moves from inflows to outflows
- Closing bank balance for the period
Base your cash flow forecasts on realistic predictions. For example, you can forecast for two to six months. Cash flow is dynamic, so adjust them when needed. Prepare estimates for best and worst-case scenarios.
Stretching Your Cash Flow
With the crisis, expect that there will be times your cash flow will be negative. Stretch your operation’s liquidity so that your business operates despite unexpected shortfalls.
Consider implementing these strategies to put your farm in a better position despite uncertain times:
1. Minimize your exposure to risks
Avoid making risky business conditions until the situation has normalized. The length of the pandemic is uncertain, so don’t do anything hasty. Stay updated with the latest news and discuss smart financial moves with your lender to make informed decisions.
2. Bridge the gap between income and expenses
Your priority is to minimize non-essential spending until your cash flow improves. Examine these areas to bridge the gap between expenditure and income:
- Eliminate all non-essential expenses
- Prioritize essential living expenses
- Talk to your accountant on tax expenses
3. Discuss financial options with your lender
Assess existing debts and talk to your lender about your options. They might recommend a lower current interest, refinancing, or debt consolidation. By reexamining existing obligations, you can free up working capital with smaller payment plan structures.
4. Get access to working capital
Now that you know how much working capital you have, it’s time to acquire the essentials to withstand future volatility better. Determine the inventory and equipment you need to purchase, whether it’s livestock feed, machines, seeds, or fertilizers.
As COVID-19 continues to change the way we usually operate, now is an excellent time to revisit your finances and set new objectives. Take the time to look at your finances, predict how your business operations stand in the future, and manage them accordingly.