Financial stability is very much like health – we only start to appreciate it when problems arise.
Financial stability is one of the key pillars of any business. It is clear that without it, there can be no success, or even survival in the market. However, this issue takes on particular importance in the case of a family-run, generational business – such as a farm, where sustainability and long-term development are fundamental.
In most businesses, the primary objective is to maximise profit. On a farm, however, the issue is somewhat different. In addition to its income-generating function, the farm is a place and living environment, so its loss has doubly disastrous consequences. This is why conscious management, based on a balance between development and having adequate reserves, between new and proven technologies, between what sells today and what the market will expect in the future, is so important.
Financial stability in any business (and it is no different on a farm) is a state of finances that enables the business to meet its needs and function, even when unforeseen events occur. Simply put, financial stability is when you can always afford all necessary expenses. This seems obvious, but experience shows that it is not easy to implement. Lack of cash is a cause directly resulting from a combination of the farmer’s actions and external factors.
The term “financial stability” is combined with “all necessary expenses”, but primarily with current expenses, e.g. seed, fertilisers, feed, fuel, taxes, etc., but this is not the whole truth. “All”, that is, also expenditure on fixed assets – investments related to capacity expansion, purchase of machinery, land, milking robot, fruit sorting plant, etc. – is not the whole truth. It is essential to critically assess the need for such purchases, because if you have, for example, 40 ha, you cannot buy a new 160 hp tractor or build a new barn for 200 stalls just because RDP support is available – wrong decisions always have long-term consequences.
An infographic on the principles of financial stability:
