Wood blocks that spell RISK next to toy forklift carrying a roll of $100 bills.

Risk management, cash flow planning for agricultural businesses

Wyoming Small Business Development Center (SBDC) Network advisers work with many business clients with cash flow and other financial management processes.

While that can be foreign to many folks, especially new businesses, agricultural businesses tend to be good at understanding the seasonal nature of their cash flows and the challenges that timing of revenue and expenses can create. That dynamic has been even more unpredictable given the current COVID-19 pandemic.

Closures of some meat packing plants and other market factors has led many to wonder, “What can I do to potentially reduce my risk?”

Livestock producers and row crop farmers often account for the timing difference between income and expenses by using a line of credit from a lender. The idea being to borrow money on the line to pay expenses when they are due, then pay the loan back when they sell livestock or a crop, hopefully with enough extra for some profit.

Analyze, cut unnecessary risks

While paying attention to operating expenses is always a good idea, now is an especially important time to analyze everything and see if you can cut some of those unnecessary items. You might source a less expensive option or postpone a planned purchase for another time. The bottom line is business owners must know their cost structure, and every operation is different!

As they say, cash is king, something even more important in times of greater uncertainty.

If you are a small ag business looking for ways to manage your cash flow challenges, this may be a good time to look into using options or futures to hedge your risks for marketing cattle. If prices happen to go up in the near future and your business purchases a favorable position, you will be sitting good if prices take a tumble with economic uncertainty late in the year or going into the next year; however, I would encourage you to work with a professional if you are not familiar with this form of investing or risk management.

Consider marketing options

Planning now to make sale dates for calves flexible is another consideration. If fall calf prices are low, perhaps having a plan to keep them longer makes sense. Marketing is going to be extremely important, so watch closely. So much is influenced by the news these days, and we all have 24/7 access to breaking news such as the previously mentioned meat plant closures.

While we hope the worst of the closures is behind us, pay attention and be ready to act accordingly. Considering options ahead of time will likely be beneficial and allow movement more quickly.

Economic Injury Disaster Loans

The Small Business Administration’s Economic Injury Disaster Loan (EIDL) program is another opportunity for agricultural producers to consider. While EIDLs traditionally have not been available to ag producers, an exception was made for COVID-19. EIDLs are 30-year, 3.75 percent interest loans to help with working capital needs, and payments are deferred for one year. The online application can be found at www.sba.gov. Be advised that EIDL loans are still available, but the Small Business Administration cautions that funds may soon be depleted.

These loans are underwritten and funded directly by the SBA Office of Disaster Assistance, not through a local lender. Contact your local Wyoming SBDC Network adviser to assist you through this application process and answer any questions you may have about this program. Contact information is at www.wyomingsbdc.org.

The Wyoming SBDC is waiving registration fees for webinars and webinar recordings to help entrepreneurs during the COVID-19 pandemic. Information is at www.wyomingsbdc.org/training.

Bruce Morse is the Wyoming SBDC regional director for Big Horn, Hot Springs, Park, and Washakie counties. He can be reached at (307) 754-2139 or at bmorse1@uwyo.edu.

About the Wyoming SBDC Network

The Wyoming SBDC Network offers no-cost advising and technical assistance to help Wyoming entrepreneurs think about, launch, grow, reinvent, or exit their businesses. In 2019, the Wyoming SBDC Network:

Helped Wyoming entrepreneurs start 108 new businesses,

Created or saved 3,402 jobs, and

Brought a capital impact of more than $24 million to the state.

The Wyoming SBDC Network is hosted by the University of Wyoming with state funds from the Wyoming Business Council and is funded in part through a cooperative agreement with the U.S. Small Business Administration.

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