Based on last week’s article, here’s an overview of how you can improve your working capital and liquidity.
Working capital is the difference between current assets and current liabilities, which measure a company’s liquidity.
The liquidity of a company is calculated with the current ratio.
As a demonstration, a current ratio of 2:1 means the firm has $2N of current assets for every $1N of current liabilities.
This indicates a company’s ability to meet its short-term obligations.
Without working capital, farms may not be able to reinvest in their agricultural production or livestock growth.
Additionally, it means that farmers may not be able to pay their employees on time or reinvest in new reliable equipment.
In an agricultural industry, like any other, it takes money to make money.
Good working capital is what helps you weather economic storms.
Farm businesses without good working capital run the risk of having less cash available for day-to-day operations, insufficient crop inventory, fewer market livestock, fewer prepaid expenses, the likelihood of more bills unpaid debts and possibly more operating debts.
However, agripreneurs can improve their working capital in several ways:
It is recommended to limit capital purchases unless extremely necessary during these downturns. It is also imperative that you look into underutilized or obsolete equipment that could be exchanged for cash to boost your cash flow.
Are your assets functioning at an optimal level? Are they fully productive? What opportunities lie in the optimal use of your assets? These are examinations that must be undertaken.
What is your debt structure? Do you need to review and restructure your debt?
Reduced operating costs
Again, what is your monthly farm operating expense setup? Are there any expenses that can be waived?
Ownership versus rental
There are options to free up working capital by reviewing rental agreements versus ownership.
Inventory, as part of current assets, has a huge impact on your working capital. Here you can review your inventory turnover and cost of ownership, depending on the type of farming.
Creating and tracking a budget
Be sure to create a budget specific to each farm business. This would allow an agripreneur to see the performance of each business unit after reviewing actual performance against forecasts.
Reduced monthly family expenses
The family’s monthly living expenses can also be reviewed to look at options to reduce and free up funds. To mention just a few points, other options may be available.
Thus, for agribusiness to thrive beyond survival, it is important to understand the importance of agricultural financial management concepts, such as working capital and liquidity to ensure the profitability and longevity of the business. ‘agro industry.