For some growers, crop yield is the most important number on their farm.
For others, it’s the price of canola.
Kristjan Hebert focuses on a more complex number — working capital as a percentage of next year’s expenses.
“Working capital … is more important than (data from) yield monitors. More important than anything,” said Hebert, who runs Hebert Grain Ventures, a 22,000-acre grain farm near Moosomin, Sask.
In January, Hebert made two presentations about farm management at Manitoba Ag Days in Brandon. He urged farmers in the audience to think about working capital.
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“If you take one thing home … please calculate your working capital. And please calculate it as a percentage of next year’s expenses.”
Working capital is the difference between current assets and current liabilities.
“It is a financial measure (that) calculates whether a company has enough liquid assets to pay its bills that will be due in a year,” says the website corporatefinanceinstitute.com.
If a farm is in good financial shape, working capital as a percentage of next year’s expenses should be 50 percent or higher.
“If that number gets under 50 percent, you need to start paying attention,” Hebert said at Ag Days. “If it’s under 35 (percent), you should probably talk to your banker before they talk to you.”
If farmers lack sufficient working capital to cover future expenses, they may need additional cash to cover their costs.
“(It) kind of lets you know how much leeway you have if this year goes bad,” said Hebert, who is a chartered professional accountant.
“If your working capital starts decreasing, you’re going to have to look for more financing. You’re going to have to find ways to cut costs.”
Working capital, as a percentage of next year’s expenses, is just one thing that can be calculated with financial statements. There is an abundance of data within financial statements, going back decades, which can be used to manage a farm more efficiently, Hebert said.
“Everyone is hooked in this Big Data, or all the trinkets that can go on our combines,” he said.
“I believe financial information is some of the best data we have on our farms, and the (worst) used data we have…. There are a whole bunch of nuggets in there to help run your operation. (Things like working capital and debt service) are every bit as important to your operation, maybe more (important) than knowing your yield per acre or your fuel usage.”
