The eighth of twelve most common mistakes agribusiness owners repeat:

The NUMBER ONE reason most family businesses fail is insufficient capitalization.

Capital is to business as water is to life.  It is required to sustain and grow a vibrant operation.  Cash reserves are necessary for managing the economic ups and downs of a normal business cycle, and for weathering the storms of an unforeseen crisis.

Our office sits on the shore of a picturesque lake.  Though not a large body of water, it’s big enough for small boats, windsurfers and the occasional fishing outing.  Helitak crews from the Department of Forestry use it as a source of water for local wildland fires.  Rejuvenated former military helicopters swoop in, hover just above the lake’s surface, and recharge their 324 gallon sky buckets.  We’ve watched this summer as, day after day, the copters scurry down from the foothills, fill their buckets and charge back to the fight. 

Besides its inherent beauty, our lake is an excellent resource - an asset - for the firefighting companies of eastern Butte County.  But, what if, during the dog days of summer with a fire in full rage, the copters came in, swooped down, and found the lake dry.  What becomes of the crisis?  Does the loss of this valuable resource intensify the disaster?  And, if not here, where do we get a back-up?

On the other hand, what happens during the years when there’s no fire?  Does the water go to waste, or is it an asset to the community that enhances the beauty of the area.  Like the lake, a full bank account allows for freedom from want, disaster aversion, and investment opportunity.  Capital available when needed is a key to long-term success.  If we don’t use the money, it doesn’t go to waste; it grows at interest and enhances our sense of security.

Create a realistic budget for long-term growth and short-term contingencies.  Fill the reservoir to enhance your ability to avert a crisis, meet unforeseen obligations and/or take advantage of an unexpected opportunity.  Cultivate the skills of good money management and sound judgment.  Save and invest for long-term prosperity.

Excellent cash flow management is a necessary skill for long term success.