Financially Speaking is a new informational series from Farm Credit Mid-America being broadcast on Hoosier Ag Today radio stations across the state. The first two reports will focus on working capital and its importance to a farming operation.
Evan Hahn, Vice President of Credit with Farm Credit Mid-America, says the definition of working capital is simple, “It is current assets minus current liabilities. But it is more than just simple math. We also like farmers to take stock of not only their cash but also outstanding checks from inventory that may have been sold, feed, seed, livestock, grain inventories they may have on hand.” But determining your farm’s working capital may not be so simple, “One mistake we see often is not accounting for accrued interest on annual loans. This can account for a large liability on a balance sheet.”
Hahn suggests that farming operations take the time and figure their working capital at least once a year, “Because knowing that working capital position gives farmers the understanding they need when negotiating purchases or land rents.” While knowing your working capital is important any time, Hahn says it is especially important in tough financial times, “It heightens ones awareness and plays into the decisions a farming operation may or may not want to make.”
For more financial tips, insights, and perspectives from Farm Credit Mid-American, visit e-farmcredit.com. Additional information can also be found on the Hoosier Ag Today web site and in the daily HAT e-newsletter.