Irrigation farmer Kyle Middleton continuously works on growing the farming operation he runs with his parents, Jacqui and Keith, outside Jacobsdal in the Free State. They have expanded their business by setting goals and taking concrete steps to implement them. However, growth may be more complex than farmers realise and must be controlled to be successful.
Growth is cash hungry, says Nico Groenewald, head of Agribusiness at Standard Bank, and growing too fast can kill your business. “When they want to grow, farmers must get their financiers on board and plan their growth. Uncontrolled growth can get a farmer into deep trouble.”
Any farm expansion project needs rigourous preparation and assessment. This includes looking at the resources you have in terms of land, people, skills, equipment, cash and a market.
“The more the farmer grows, the greater the variables that come into play and the more outside support the farmer will need,” says Groenewald. “There will be difficulties when a farmer decides to do it alone.” Part of a farmer’s strength is in knowing his or her weaknesses and tapping into the right kind of expertise that will provide the necessary help and stop them from feeling overwhelmed.
Farmers also need liquidity, which is the ability to pay debts with cash and assets that can be converted into cash quickly. For instance, a crop of potatoes waiting to be lifted turns into cash as soon as the crop is sold, giving the producer liquidity. But when you look at long-term crops like tree nuts or citrus, it may be years before the crop is ready for a commercial harvest. Groenewald explains that banks lending money to finance such ventures will take this into account.
It is important that farmers understand when and how the capital will be used, and make sure the capital is available at the right times, he adds. “Look at the various sources of capital out there to fund your growth, otherwise you could run into a cash-flow gap. And remember that growth needs cash and cash needs planning.”
For more information, visit www.standardbank.co.za/southafrica/business/products-and-services/business-solutions/industry/agribusiness