Here are four important considerations when reviewing your cash flow in 2020:
- Assess 2019 Crop Leftovers. Don’t forget to look at the remaining 2019 crop in the bin. Evaluate how much of it is sold on contract versus not sold. Make sure you update the inflow of that cash, as well as the 2020 crop cash flows.
- Identify what you will be storing vs. selling vs. forward contracting.
- Reach out to your buyers regularly (as things are changing) to see if they have had any disruptions that would cause you a delivery delay and impact your cash inflow.
- Be cautious about chasing market gains to the detriment of your business. As they say, cash is king!
- Anticipate Market Volatility. While none of us can control the markets, we can control risk management plans. It’s imperative that you protect your operation in case markets don’t recover right away.
- Evaluate what is sold vs. unsold.
- Consider locking in both input and grain prices. The tighter your cash position, the more important it is to lock in prices and eliminate risks.
- Contact Your Lender to Optimize Debt Structure. Now is the time to talk with your lender about borrowing capacity, structure, and interest rates. This is not the year to scrape by with an inadequate line of credit. Getting your debt structure right can free up borrowing capacity, reduce borrowing costs, and lower payments. Yes, the Federal Reserve Board has slashed the Federal Funds Rate to 0%, but that does not mean your mortgage rates or other bank credit facilities are going to 0%. Mortgage rates don’t always track the Fed rate, as they are aligned with the bond market. Other bank borrowing can be more closely aligned with the Federal Funds Rate; however, rate floors, underlying indexes, the bank’s cost of funds, and interest rate spreads will all influence your final rate.
- If you want to refinance, consider getting loan pre-approval now. Long term financing rates are currently volatile and you may have a small window to lock in improved rates. Pre-approval allows businesses to be opportunistic should rates drop.
- If you have a prepayment penalty and you are looking to refinance, check to see whether you can make back that penalty within the next year or two, and calculate the overall savings.
- Investigate whether there is an opportunity to change up loan terms for cash flow purposes.
- Increase Communication. This year is shaping up to be even more critical for producers (more so than the troubling 2019 harvest) looking past the 2020 planting season. Reviewing your cash flow needs and discussing them with lenders and key stakeholders regularly will be crucial. Be sure your lender understands the risks in your business and the steps you’ve taken to mitigate them.