12 Tips To Maintain Cash Flow
In today’s tough economic environment, there are still some things you can do to maintain cash flow through the rough spots. Larry Tranel, an Iowa State University Extension dairy specialist, offers these 12 tips:
- Maintain a cash flow budget for 12 months. “With a 12-month cash flow, you can figure out if there are some months where you are going to be short and do something different to make up the shortage,” he says. Or if there are months with excess cash, you might be able to park that cash in higher interest-bearing accounts to earn more than you might in your checking account.
- Reduce non-profitable and family expenditures. “We might be spending more on things that aren’t really profitable or maybe we have to reduce family expenditures as well,” he says.
- Maintain only necessary insurance. “I see some farms that have some very, very high insurance coverages…. If you have enough equity, can you be a little more self-insured and take a little more risk?” he asks.
- Increase revenues or non-farm income. Are there ways to increase revenues? “Maybe a spouse needs to get a job for little while to get the farm over the hump,” he says.
- Reduce or delay capital expenditures. “Sometimes I see some unnecessary machinery on farms that just sits there but may have steel value to a neighbor. Should you sell it?” says Tranel.
- Custom hire services. Sometimes it makes sense to custom hire cropping or harvest services rather than own equipment that is not fully utilized. “You can be a little more efficient with custom hiring some services,” he says.
- Raise only the heifers you need. With the high cost of heifer raising, it’s unlikely you’ll get that full value back if you raise every heifer born on your farm. Are you doing DNA testing to ensure you’re raising just the top end? And are you culling marginal cows early so as the milk price drops, you’re above the marginal cost of producing milk?
- Renegotiate cash rents or delay payments. You landlord might be willing to renegotiate rental rates or terms if you ask.
- Renegotiate loans, pay interest only or extend loan payments.
- Just-in-time inventories. When you had plenty of cash, having large inventories of feed, fuel or semen might have made sense. But when times are tight, carrying just what you need for the next month or two will lower carrying costs of that inventory.
- Reduce unnecessary hired labor. Can you get by with less labor for a short period of time?
- Bridge operating loans or tap unused borrowing capacity. You may have to increase debt to tide you over, but make sure you’re not burning up equity that you might need later.
Lean more on maintaining profit levels and cash flow by clicking here: http://fourstatedairy.org/webinars.html