Grain sales that lead to improvement in working capital year over year are good sales even if there are reasons prices could go higher.
Working capital is your cushion to absorb tough years and your dry powder to fund growth.
Improvement in working capital happens in two ways:
1) Revenue exceeds cash needs of the operating cycle and debt service.
2) A change in non-current debt or equity that generates cash
1) Revenue exceeds cash needs of the operating cycle and debt service.
2) A change in non-current debt or equity that generates cash
We like 1 better. Cash coming in from your income statement/operating cycle. Sale of grain, livestock, etc. Enough to pay all expenses, labor, and loan pmts.
2 is a backup plan. Cash coming from down the balance sheet. New or restructured term loans, owner kicks in equity.
2 is a backup plan. Cash coming from down the balance sheet. New or restructured term loans, owner kicks in equity.
Know your working capital and have a goal to increase it.
Project your cash needs (oper expense, debt svc, cash out for living, etc).
For me, this mindset helps me stay objective in market and manage my emotions.
Project your cash needs (oper expense, debt svc, cash out for living, etc).
For me, this mindset helps me stay objective in market and manage my emotions.
How I think about a farm balance sheet:
Rest of it...