One of the best parts of my job is travelling around the country, meeting ‘ag-repreneurs’. Not only do I get energized from meeting new people, it’s exciting to see the innovation, commitment and potential in Canada’s agriculture industry. The folks I’ve gotten to know are passionate about growing their businesses, and many have a million ideas on how to do so.
While it’s no surprise that growing the revenue side of the business is something entrepreneurs are very good at, I’ve noticed that many are failing to plan the financing of that growth. They aren’t thinking about, or are underestimating, the amount of working capital they need.
Drawing from my own experience as former president at sod company, Manderley, we determined that to sell an additional 100 acres of sod, we needed $350K of working capital.
To illustrate: for every acre we planned to sell each year, we actually needed 2.5 acres planted, to deal with both yield and the two-year crop cycle of sod. With that in mind, the calculations worked as such:
|land rent per two-year crop||$ 500.00|
|land preparation and seeding||$1,300.00|
|mowing, fertilizer and herbicide||$1,750.00|
Simply adding 100 acres required working capital of nearly $350K, even before we made a sale. By knowing your capital needs, growth can be far more enjoyable and stress free (or at least, less stressful).
I’ve also learned that if I get my working capital financing through a bank, meeting with them in advance goes a long way in gaining their confidence in me as a business leader and in my business. Springing it on them at the last minute when you’ve already committed, can have serious ramifications. if a bank were to become nervous about your ability to run the business, they may demand immediate payment of your demand loan facilities (like your line of credit), which would leave you scrambling to find another source of credit.
It costs money to grow and there is nothing more discouraging than winning that big contract only to realize later that you don’t have the ability to deliver on it. Save yourself the stress and plan your working capital requirements at the same time as you are planning your growth.