5 Tips to Manage a Cash Crunch During the Busy Season
The stress is debilitating… you’re working round the clock to plant, harvest and sell; and you look at your bank account, and there’s nothing there. This is supposed to be the time of year when you transition from a net outflow to a positive cash flow. But with the extreme weather this year – record heat, torrential rains and flooding, and drought – many farmers are behind and struggling to manage cash.
If you’ve set up a good bookkeeping system, you can more easily spot where you can adjust… and they usually fall into one of three categories:
- cut back on expenses,
- raise your prices, or
- increase sales.
If you don’t have a solid bookkeeping system, you don’t necessarily have the information you need. And you really don’t need a lecture from me at this point about your QuickBooks. You need quick answers and solutions. You can’t get to the end of the season (and to a space where you can make a commitment for better bookkeeping) if you can’t get through this immediate cash crunch.
While “increasing sales” can feel like the most obvious solution, it’s also the one most fraught with peril. If you increase sales on unprofitable items, then the more you sell, the worse the cash problem will become.
Here are 5 tips for improving cash flow without creating new problems:
- Focus sales/production on your most profitable crops (going forward).
Yes, I know… if you don’t have a good recordkeeping system, then how do you know which crops are most profitable? In this kind of situation, we can ignore the historical expenses. That is, if you’ve already spent the cash on planting and weeding, you won’t be able to recoup any of those cash-outlays regardless of whether you sell the tomato/melon/carrots or not.
The question is: what will it take, from this moment on, to get the product to market? Make a spreadsheet with three columns. In the first column, list the product. In the second column, list how much you can harvest in 1 hour with a 2-person crew. In the third column, note the estimated revenue.
Let’s say, you can harvest 50 pounds of cucumbers in 1 hour. That’s 25 pounds of cucumbers for 1 hour of labor. Let’s further assume your labor expense is $20/hour. If you can generate $2 pound of cucumbers, that’s $50 of revenue for $20 of labor. Or $30 gross profit ($50 – $20).
Do this math with 10-20 of your crops. These are numbers easily and it doesn’t take too long. Now look at your list of crops to see which are most profitable and which are least. Where does it make sense to focus your attention? If tomatoes are not profitable, then what’s the minimum you can harvest and not lose customers? If zucchini is your most profitable, what can you do to sell more zucchini? Do you need to offer recipes and cooking tips? Can you better clarify to your customers what makes your varieties so superior?
- Increase prices.
In the past year, we’ve experienced extraordinary inflation. I can tell you from my own experience – 2 bags of groceries at my local supermarket that used to cost $40 now costs over $100. No doubt, you’ve experienced this too… not just with your personal expenses but also with your business expenses.
Chances are good that even if you raised your prices, the increase did not keep pace with your increased costs. You can still raise prices again; even if it’s just 50 cents per pound. If your hesitant to raise prices, consider raising them on just 1/3 of your products for now. If your customers see that some of your prices stayed the same, they may be less put-off by the prices that do increase.
- Streamline your labor.
For larger operations, you may have employees dedicated to different enterprises and sales channel. You may have someone dedicated to flowers and someone dedicated to the greenhouse. If you commit 40 hours per week to each employee, you may have a hard time cutting back labor. It may make sense to cut out one position; and more creatively manage the other positions to fill in gaps as necessary. Do you really need the extra farm-store person? Can other people jump in when during the busy rush?
- Work through inventory.
For sure, inventory is an asset – it offers the promise of cash (or in academic terms, it’s future benefit as the result of a past transaction). But if you have inventory on the shelves of your farm-store, or in the freezer of your packing room, it’s cash you don’t have in the bank. Every time you add inventory, you’re taking cash out of your bank account, and putting it on your shelves and in your freezer. And when you sell through your inventory, you can bring in cash without any cash expense. Make sure you don’t have any more inventory than you need. Don’t stock up on products unless you absolutely need to. Promote sales of products already in inventory.
- Streamline your operation with a shrink sheet.
What are you throwing away, or feeding to the pigs and chickens? Did you overharvest watermelon and not sell them all? Did you purchase too much raw milk for the farm-store and not sell it?
If you throw product away, you also throw away the labor invested in harvesting and the cost of purchasing. If you can better manage your operations to throw away less, you “waste” less cash.
You may have a gut instinct of what you toss; but if you don’t write it down you don’t really know. A shrink sheet can offer guidance into better ordering, harvest sheets, and inventory management.
Even without knowing your numbers more intimately, there are still options to decrease expenses and increase revenue that can be productive in managing a cash crisis.
Have more questions? Business Essentials Members are always welcome to join me for a speed-coaching session. We can troubleshoot possible solutions and talk about pragmatics and logistics.
