When making business decisions you consider the impact on your Profit & Loss, Cashflow and Balance Sheet.
The same applies when considering the suitability of your Feedlot Finance Facilities.
Profit & Loss
Whilst the interest rate (cost of funds) is usually the primary consideration, another factor that is often overlooked is the impact of decreased overhead costs through improved economies of scale across an expanded cattle portfolio (especially when the additional cattle are to be custom fed offsite).
Cashflow
No feedlot finance facility covers 100% of the Livestock Purchase Price and 100% of Feed Cost. The shortfall is the negative cashflow per head and this needs to be funded from cash reserves. The higher the advance rate of the Feedlot Finance Facility, the lower the cash reserves that are required from you.
Balance Sheet
In addition to the cash that you have tied up in trading livestock, what property assets are being held by your bank as collateral over yourlivestock trading facilities? What is the opportunity cost of this? Could this borrowing power be better used to expand your feedlot, vertically integrate, or invest off farm?
Summary
Based on your assumptions entered into the calculator by you:
- Your Feedlot is worth $ per head.
- Your Bank is allowing you to access debt facilities of up to $ per head against the deeds of your feedlot
- You have cash outgoings of $ per head (being $/head for Feed Expenses and $/head for Livestock Downpayments)
- This leaves you with a shortfall in available debt of $ per head.
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To Fund this shortfall you need to have to
- have retained profts of $ tied up in your business or
- put up another $ of non feedlot assets to secure the additional working capital.
