Inflation and working capital

"Cash flow is the lifeblood of any business"

"In the case where you know an input will be difficult to buy it’s a good idea pay close attention to them"

    In 2021, disruptions in supply chains and increasing inflation have made headlines across the world. These disruptions in the supply chain are having two impacts; increased cost of production and few goods available for people to buy. The flow on from this is an increase in price for goods, which is driving inflation and why the recent US CPI increase is at an almost 30 year high.

    Australia is no different with the ABS announcing CPI had increased by 3% over the last 12 months ending September 2021. So, what impact does this have on your farm?

    Working Capital Accounts

    Cash flow is the lifeblood of any business, something challenged with continual price rises that cause you to revise your budget. In addition to this challenge is the lack of certain inputs, like urea, you need to operate your business causing disruptions.

    In the case where you know an input will be difficult to buy it’s a good idea pay close attention to them, purchase up extra quantities so you have it on hand when needed. This strategy will mean you can continue to operate but it will cost more as you buy in larger quantities.

    Five Tips.

    1. Work harder on your return on investments to get the most out of your assets.
    2. Look at your expenses across the whole business, prioritise them and put more focus on expenses in general so you are only spending on what adds value.
    3. Increase the majority of your expense items and make sure you have a strong understanding of your working capital position in advance.
    4. Plan increases to your cash or credit lines that can be used against your expenses in advance.
    5. Plan for delays in supply chains as they’re not likely to ease soon so you can calculate how much inputs you need to purchase.

    By following these steps, you can manage the speed bumps that come along with inflation and supply chain delays to keep the farm running efficiently.

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