1. One large payout a year
It’s not the case with all beef producers, but when you market your animals in the fall, payment often must be stretched for the next 12 months.
Backman recommends working with your lender to ensure that major payments occur as close to your anticipated sale dates as reasonably possible to minimize interest payments. Also, understand your approximate yearly expenses to choose better what to spend cash on.
If cash is tight, contact your lender early. Options include having the right credit line or adjusting payment dates to match cash flow.
What is the plan to effectively manage that money?
Know your numbers to understand if purchases and expenses make sense
Review your annual financial plan every three to six months to ensure you are still on track and able to make all your purchases and pay your bills
Try to minimize the use of working capital borrowed or operating cash to a certain extent
If you sell in the fall but your payments are set for spring, money must be managed effectively.
2. Capital investment evaluations
Just because prices are up now doesn’t mean the next month will be as rosy. Many producers lived through prolonged price shocks during the pandemic, a strong reminder to be on top of money coming in and out of the ranch and employ conservative financial planning.
When making a capital investment decision, such as increasing herd size, upgrading equipment, or buying land, consider whether the purchase would make sense if cattle prices dropped, explains Janzen. This helps focus on understanding the risks you’re taking and the possible shortfalls that could occur. Janzen encourages producers to spend a few days every year digging into their numbers and using realistic cow-calf projections in their cash flow planning.
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