Factors Affecting Cash Flow for a Farm
By Craig Gocken
For any small business, managing cash flow is a major concern. Even if sales and profits are good, cash flow may still suffer due to the timing of inflows and outflows of cash. However, cash flow for a farming operation can be even more susceptible to changes in certain conditions. These are some factors that can affect cash flow for a farm.
Local Weather Events
There is probably no other business that is as dependent on weather as farming. As every farmer knows, a single day’s weather can destroy a whole season of hard work. Hail, wind, lightning, cold weather, hot weather, too much rain, too little rain – any of these can impact your yield. It follows that any effect on your yield will also affect your cash flow.
Commodity Prices
There is a reason that farmers follow the markets. They know that prices can fluctuate with little or no warning in response to a number of influencing factors. Changes in the prices of relevant commodities will affect the inflows of a farming operation, which obviously will affect overall cash flow.
Cost of Inputs
Markets also affect cash flow by influencing the cost of inputs. Some of the inputs required in agriculture include seed, feed for livestock, chemicals, and fuel. All these can vary in price based on what is going on to drive the markets in one direction or another. As costs of inputs change, cash flow will change too.
One-Time Expenses
All businesses encounter situations that require an atypical investment from time to time. In farming, these expenses can be quite pricey. For example, farm implements can be very expensive and yet sometimes must be replaced right away to keep the operation running. These kinds of purchases can definitely affect cash flow.
Economic Conditions
Finally, cash flow can be affected by various global economic conditions. Interest rates can influence cash flow both through inflows (from interest income) and outflows (interest paid on debt). Additionally, changes in tax policy can impact cash flow.
Many factors that can have an effect on cash flow are beyond your control. It is for that very reason that Federated Bank offers flexible lines of credit for agricultural operations. These lines of credit can help smooth out the unforeseen changes that create an uneven cash flow for a farm. Come in and talk with us about your particular situation.
