How to manage cash flow in agriculture
Agriculture is a key industry in Australia, with the gross value of Australian farm production reaching $60 billion in 2016-17. However, it's also a sector where it's easy to experience cash flow problems.
Poor harvests, fluctuating commodity prices and changing patterns of demand can all help to cause cash shortages for farmers, with events such as these often hard to predict and therefore plan for.
How can you improve your agricultural business' cash flow?
Understand your costs
Essential to cash flow management is understanding how much money you're spending.
For example, how much does it cost to operate the farm, how much are you paying labourers, and what amount are you taking out of the farm for living expenses? It's important to have a strong idea of all of this from the beginning so you can keep an eye on your cash flow.
Work out what's causing poor cash flow
If you're experiencing cash flow problems, it could either be short term, such as a poor growing season, which may correct itself in time, or something more long term. It's important you can identify what's causing your poor cash flow so you can remedy it.
Long-term cash flow problems in agriculture can include:
this is measured by the physical and economic output of the business. To calculate this you have to look at things like yield per acre or variable costs per unit of output. If your farm is experiencing a high cost of production, you may have an efficiency issue.
Very large farms can have issues when they are too big to manage. On the other hand, farms that are too small may employ too many people, meaning the cost of labour doesn't meet the amount you are producing and selling.
Debt structure problems
Many businesses have debts, but there are ways to structure them to improve your cash flow. For example, you could try lengthening your repayment term so that you are paying back less each month.
As an industry that provides over 1.6 million jobs, agriculture is a vital part of Australia's economy. It's essential that farms know how to manage their cash flow if they are to continue this. Classic Funding Group offers a range of solutions. Our debtor finance lets businesses take out an advance of up to 85 percent against their outstanding invoices, while equipment finance means farms can take out a loan against the value of the equipment they own.
Contact us today for more information.