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Working Capital is King


After attending the Canadian Association of Farm Advisors "Top Farms" conference in Regina I would like to share a few key points from Todd Andries (Conexus Credit Union) presentation on Working Capital.

Working capital is determined from calculating the current assets less current liabilities on a balance sheet. It is effectively what you would be left with if you were to take all your assets on your balance sheet that are easily convertible into cash within one year and pay down the debts that are due within one year.

Working capital is just a number until you look at it in perspective of the operation as a whole. Todd suggested that determining the percentage that working capital is of the total farm annual expenses is a very good indicator of whether that number is adequate for each individual operation. His guideline is that working capital should cover at least 25% of the total annual expenses for an average farm, however an ex-panding operation will require more than that to be comfortable.

Inadequate working capital results in cash flow issues and often lead to poor agronomic and business decisions due to cash shortage. Increasing profitability, refinancing assets and selling of unnecessary or high-priced assets are means of improving working capital.