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Expansion Plans

Expansion Plans

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Harry* is one of those subtle role models that every farm community has. While no one treats him like royalty, nor does he act like it, everyone knows Harry is highly respected, not just here at home, but in the agriculture community across the entire province. He has quietly, and diplomatically, build his own little empire.

Most people wonder how Harry has done it. True, they are a little envious, but they cannot understand how Harry could be so well off compared to most others in the area when he gets the same weather, he farms similar soil, and grows similar crops as everyone else. Harry’s yard is always neat and tidy, his buildings are clean and kept up, and his “not new, but not old” line of equipment shines like a new dime despite some of it being over ten years old. There are three new 60,000 bushel bins going up this spring, and a concrete pad has been poured which, if you believe what you hear on coffee-row, is for a new grain cleaner.

Harry has expanded his crop acres a little at a time, never making a big splash in the market. Neighbors usually come to him because they know he is a character guy: he always pays his rent on time, he respects their land, and he keeps them informed. Through rent and purchase, Harry has taken the 1,200 acres he inherited from his parents in 1984 and has grown it to 8,600 acres today. He owns about 6,000ac and rents the remaining 2,600.

Harry heeded some sage advice when he started out. He was told that production is only part of the equation; the haughtily delivered quip stuck with him through the years, “Farmers don’t get paid for growing it, they get paid for selling it!” While production is incredibly important in the commodity business, Harry learned early that in the commodity business you have to produce as much as possible as cheaply as possible. Efficiency of finances and expenses, not just operations, would be key.

Harry has worked diligently to keep his costs down, especially equipment. Despite easy credit and low interest rates readily available, Harry has stuck to his guns when solicited with discounts and deals on newer equipment. He has drilled down on every operation on his farm, and can tell you quite accurately what his entire cost is per acre, including labor and depreciation, for seeding, spraying, harvesting, and trucking. He knows off the top of his head when he is better off hiring custom work or doing it himself by comparing the custom rate he is quoted against what he knows are his “all in” costs.

Harry recognizes that he cannot be an expert at everything. He knows he is an operations expert because he has managed his costs to their lowest reasonable point and because he manages his crew and makes all logistical decisions to get 8,600 acres seeded and harvested with greater efficiency every year. Harry knows he is not a human resources expert, so he’s taken coaching in order to improve his employee relations; he knows he is not an expert in international grain markets, so he’s hired an advisor and subscribed to market intelligence services, he knows he’s not a financial expert so he heeds his banker’s advice and has even hired a financial and capital expert to increase his confidence in the decisions he wants to make.

Harry has been thinking about expanding the farm for a couple years now. His two children, now in their early twenties, have shown a real penchant for the farm. After taking his advice to work somewhere else (either in or outside of agriculture) and to get a post-secondary education, Harry’s children have solidified their dedication to the family farm, bringing with them their outside work experience and their formal education: one with a Bachelor’s of Science in Agriculture, the other with a Bachelor’s of Commerce. The kids get along fine, and work very well together. Their differences in interests and education will bring a real synergy to the passion they share for the farm. Harry is incredibly proud.

Two of Harry’s neighbors have been thinking about retiring for a number of years now. Being the proactive strategist that he is, Harry has been discussing the possibility of expanding the farm with his advisors. Today, Harry is supremely confident that he knows exactly what upgrades need to be made to equipment and labor, and how it would affect his balance sheet, income statement, and cash flow, should he be successful in taking on more acres.

When Harry heard that Fred’s effort to rent the land of both neighbors came up short, he was honored when those neighbors came to Harry and asked him to rent their land. Having been planning for this opportunity for almost two years, Harry has been aligning his resources and as such he has abundant working capital to take on about 2,000 acres from each of his two new land partners. After having coffee with each neighbor for a couple hours, Harry has acquired the knowledge he needs and now knows what he will seed on which field. He calls his supplier to inform them of the additions to his original corp plan and procures the required inputs. Despite it being early April, Harry gets everything in place smoothly. He knows full well what a stressful mess this new land would be if he just tried to pull the trigger without planning for how to get it done.

To Plan for Prosperity

If the story above sounds too idyllic, please know that Harry’s last name is not “Perfect” (Get it? He’s not “Mr. Perfect”!) Harry hasn’t done everything right, and he doesn’t do everything right on a daily basis. What he has done different, what he does so well is that “he knows what he knows, and he knows what he doesn’t know,” and as such, he has equipped himself with the right help and advice to fill the gap. What might be the most important thing that Harry does well is that he makes a plan, and uses great discipline to not allow temptation to lead his plans astray. He avoids the temptation to increase his costs from high priced equipment or fancy yield-exploding elixirs. He maintains his strategy of keeping costs down, and protecting cash flow & working capital as the life-blood of his business that it is.

If you asked Harry, he’d admit that there are many decision he would have made differently from knowing what he knows now. But, being strategic and disciplined has allowed Harry to grow his business, not only in size and scale, but in efficiency, profitability, confidence, comfort, and lifestyle.

*Harry is a fictional character. The story portrayed above is fictional. Any similarity to a real person or situation is purely coincidental.

 

passion

Passion

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“A business without passion is merely a job.

A passion without business is merely a dream.

Making a business of your passion is a bountiful success.”

This morning I was in an email conversation about “mastering your craft” with a fellow business advisor, an incredibly intelligent woman who also happens to be one of my best friends. It reminded me about one of the points I would make during my many speaking engagements over this past winter: sometimes passion is not enough.

We’ve heard it and read it before. It falls out of the mouths of motivational speakers everywhere. It is seen regularly on daytime talk shows, infomercials, and of course, the interweb. “Follow your dreams…harness your passion…” What if passion is not enough?

There are many who venture into “business” who are either ignorant or willfully blind of the financial and management side of “business.” Often they believe that their skill and their passion are all that is necessary to be successful in business. As Michael Gerber wrote in The E-Myth, “The Fatal Assumption is: ‘if you understand the technical work of a business, you understand the business that does the technical work.’ And the reason it’s fatal is that it just isn’t true. In fact it’s the root cause of most small business failures.”

Just because you’re a great cook does not mean you should open a restaurant.
Just because you’re a great welder does not mean you should start a manufacturing company.

This is not to discount the importance of mastering your craft. Realizing on your passion is a gift too few of us ever get to realize. BUT…if you intend to make your passion into a business, you need to know BUSINESS!

I don’t know anyone anywhere whose passion is “cash flow,” but it is an integral part of business that must be intimately known, or the gap from startup to liquidation could by mighty small.

To Plan for Prosperity

During many of my speaking engagements this past winter, I’ve suggested that a simplified strategy can be 1) Find what you are passionate about, and 2) Determine if you can make money doing it. Passion on its own is not enough.

There is a difference between “business owners” and “people who own businesses.” The former are entrepreneurs; the latter have bought themselves a job. Despite “The Entrepreneurial Myth” as Gerber defined it, all hope is not lost for those who have fallen into it. The people who will be most successful are those who can admit they need help in areas where their passion does not lie.

“Do what you do best, and get help for the rest.™”

 

 

Cycles

Cycles

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The weekly op-ed by Kevin Hursh in the Western Producer is a regular read for me. His recent column, Taking Risks OK, but prepare for the next downturn is another resounding piece clamoring for farmers to sit up and take note.

Bullet proof your balance sheet during the good times, so you can catapult ahead of your competitors during the bad times.
If you get greedy during the good times, you’ll likely be on your knees in the bad times.

-Moe Russell, Russell Consulting Group, Iowa USA

We’ve all seen enough charts and graphs over the years to be able to acknowledge and recognize the cycles of the past. Has anyone ever been able to consistently predict a cycle’s beginning, end, or severity? Certainly few, if any, in the energy sector could have predicted what they are going through right now…

Your business produces commodity, and in the commodity business you have no control over the cycles that affect it. Recognizing that cycles will always be present and will always affect your business is the first step. The next step is to prepare.

The future will always belong to those who see the possibilities before they become obvious.

-Danny Klinefelter, Honors Professor & Founder of TEPAP, Texas A&M University

Hursh writes, “While no one can predict the future, it’s probably naive to think that grain prices will always be this strong relative to production costs…it would seem equally naive to think that a world grain glut couldn’t cut grain prices by a third or even by half for a prolonged time period.
” If you follow ag-economic news from the US midwest, you’ll know that farmers there have been under significant pressure, land values are dropping, and lenders are reducing credit limits and tightening lending terms. I’ve asked on a number of occasions, “Who thinks this can’t happen here (in western Canada)?” (ref. Twitter)

Market cycles will hurt some, but offer opportunity to others.
The difference between who suffers and who prospers is…Who’s Ready.

– Kim Gerencser

To Plan for Prosperity

If adhering to the advice in any of the three quotes above, to “bullet proof your balance sheet” & “see the possibilities” in order to “be ready” for the next round of business cycles…well, you better get lean!

While LEAN is possibly best known as a system of techniques and activities for running a manufacturing or service operation, in the context here LEAN means “sans fat.” Trimming the fat from your operation is a primary step to solving cash flow challenges, increasing profitability, and reducing risk. Driving down your operating costs is key to consistent profitability in a time when yields, production quality, and markets are anything but consistent.

Next, reduce the impact of emotion on your business decisions. Two basic human emotions, fear and greed, often have the biggest impact on “why” and “when” bad decisions get made.

In closing, your pragmatic 3-step plan to prosperity during cycles in the commodity business are:

  1. Get lean;
  2. Eliminate “fear and greed” from impacting business decisions;
  3. “Do what you do best, and get help for the rest™”

 

shaking my head

Shaking My Head

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There are so many instances where I’ve heard someone say this to me in the last number of months. Here are some examples of what I’ve heard.

“I’m shaking my head…

  • wondering how we got talked into this.”
  • at these guys who push their rotation trying to get a big payday.”
  • trying to figure out how they can keep getting more credit when I can’t.”
  • at these guys who haven’t learned from the mistakes of others.”
  • at these guys who keep going full throttle when they don’t know their numbers. Do they even have a clue how they’re doing?”
  • at how some of these guys just keep spending. Where is it coming from?”
  • why we didn’t buy that land 5 years ago.”
  • why we paid so much to rent that land 2 years ago.”
  • trying to figure out how anyone can be profitable paying that kind of rent.”
  • at what it’s going to take for the people who need help the most to realize they need help!”

While these aren’t my words, I concur with most of them. We must not punish ourselves by berating yesterday’s decision because of today’s new perspective. We can’t change the past, we can only move forward. BUT, we can apply future risk management to today’s opportunities when determining what decision to make.

To Plan for Prosperity

Lately at most of the events which I’ve been speaking, I’ve been giving reference to “the ripple effect.” This pertains to the effect that today’s decisions will have on other aspects of our business, especially future results. We often see long term decisions being made (especially around land, buildings, and equipment) based on short term results (Eg. one year’s profitability.) I continue to be a proponent of “long term assets securing long term debt” and if you subscribe to that logic, then shouldn’t long term decisions be based on long term results?

intimate with EBITDA

Be Intimate with EBITDA

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No, not in the literal sense. This is a G-rated commentary…

EBITDA is an acronym for Earnings Before Interest Taxes Depreciation & Amortization. It is your business’ profit from operations. More than just understanding it, being intimate with how it affects your business is critically important.

EBITDA is pure because it does not include the effects of financing decisions (this is why is excludes interest,) accounting decisions (this is why it excludes depreciation & amortization,) and tax environments (this is why it excludes income taxes paid or payable.) It simply shows just how slick of an operator you really are.

ebitda calculation

If your accountant isn’t including this in your financial statements, you can figure it out pretty easily using the formula above. How has your EBITDA been trending over the last 5 years? Have you considered the reason why?

Your lender is keenly interested in your EBITDA. In fact, he or she will calculate it internally and measure it against your total debt payments required in the next 12 months. It is called “debt service coverage” or DSC for short, and is a deal breaker if it doesn’t meet your lenders’ minimum standards.

For many farms, net equity has been on a very positive trend over the last several years. While this is good news, like any news we can’t just take it at face value. What is the underlying story? If equity has been increasing from appreciation of asset values (namely land) and not from retained earnings, then it does not build confidence that the operation is profitable. If the operation is profitable, it is capable of growth and meeting loan repayment schedules (those same loans that help fund the growth.)

retained earnings

If a business is not retaining any earnings within the business, it limits its ability to fund growth, transition, etc.

To Plan for Prosperity

Recognize that EBITDA is the measure of your business’ operating performance. It has a key accountability in growing your business’ net equity. It is heavily relied upon by lenders.

  1. Calculate your EBITDA. Look at how it is trending. Acknowledge what it affecting the trend.
  2. Understand your lender’s debt service coverage (DSC) calculations.
  3. Decipher what has had the greatest inpact on your net equity: appreciation of assets, retained earnings, or both?

Your relationship with your EBITDA should be very, very close; some might even say “intimate.”

 

tepap-logo

Greetings from TEPAP

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The Executive Program for Agricultural Producers has been described as “a farmer MBA.” Born over 20 years ago at Texas A&M University and the brain child of Danny Klinefelter, TEPAP has helped numerous farm managers and operators improve their businesses in ways they never considered before.

In Session 1, there is Canadian representation from New Brunswick to BC, with the heaviest concentration from the prairies. The US is widely represented from all 4 corners (Washington, California, Florida, and Vermont.) There are 2 participants from Australia.

Everyone has a unique reason to want to better themselves and their business, yet the theme around the room during introductions was similar. Even the Aussies remarked at how the only difference in what they are hearing this week compared to back home is the accent.

Prosperity is at the root of everyone’s reason for seeking improvement. Consider these 3 facets of your life and business when determining where and how you want to be better.

Communication in Business (or with Family)

As Elaine Froese likes to say, “It’s never a problem until it’s a problem.” Why not sit down with business partners, family members, etc, to clarify the issue, and set a path for resolution? We know that the answer is “because it isn’t that easy.” But just because it isn’t easy is not permission to avoid the situation. Consider this: if expectations aren’t being met, and no one is talking about it, you’re setting up for a train wreck! I captured a quote from Dick Wittman this week: “The biggest mistake we make in family negotiation is assuming what’s going on in everyone else’s head.”

Are you ready to seek out the resources you need to help you have the talk?

Financial Knowledge and Management

Every day, I learn more about improved methods to gather, analyze, and manage information, all so that better decisions can be made at the farm. The resources available to farmers today are greater in number and scope than ever before. I have gleaned new process to help determine the age old questions of “rent versus buy farmland,” and “what is the actual ROI on that piece of equipment?” I am eager to use these new tools with clients as soon as possible.

What gaps do you have in your current financial knowledge and management that need to be addressed?

Life Balance

No longer are we calling it “work-life balance” because you don’t have two lives, you have one…and it needs balance. If you are out of balance, have you considered why? The TEPAP faculty recognizes that the participants in the room are overachievers, who, statistically, find it easier to work than to play. This is a challenge for anyone who has the level of passion for their business and industry that most farmers do. What we must acknowledge is that this can often be a challenge for the families of said passionate farmers too.

How have your priorities changed over the last 3 years? Are you adjusting with the changes life brings, or staunchly entrenched in old habits?

To Plan for Prosperity

It’s been said that lifelong learning is one of the key tenets to achieving the life we want to live. And our businesses must keep growing to sustain themselves. It need not be learned, achieved, or practiced all at once. Improvement is a process. You can’t eat a whale with one bite, so start small with some important goals, and then do the hardest part: take the first step.

change

Critical State – Unwilling to Change or Adapt

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As we prepare to close out 2016, let’s look at change. No, not the coins in your pocket; no, not swapping your attire.

We change

  • when we see value (Eg. switching to minimum tillage practices.)
  • when we are forced (Eg. a health scare.)
  • when the pain of staying the same is greater than the pain of changing (this is hard to quantify because there is comfort in the familiarity, not matter how painful.)

change-venn

Value:
Change to achieve value is easy. We see benefit to doing something different, and we implement change. Although, this is incredibly difficult to define, and can be as diverse as each individual person’s opinion of “value.”

Forced:
Sometimes we get feedback from our doctor, or our banker, that is bleak, stark, or harsh. If we do not change X, we are certain to face Y. If Y is scary, unimaginable, or intolerable, the change to X is usually made pretty quick.

Pain:
Pain is subjective. And it has been found that pain tolerance can be surprisingly high if it means avoiding change.

Look back at 2016, and few years prior to that as well, and consider what drove the change(s) you made:
PAIN isn’t what drove you to acquire a new pickup. Neither was it FORCED. So what was the VALUE?
Was there FORCE or VALUE that led to a plan to improve working capital?
Was it VALUE or PAIN that led to having hired help on the farm?

Determining the factors that brought about the change(s) you are evaluating is a worthy, albeit difficult, exercise. Once we understand what it is that motivates us to change, not generally but specifically, we can use that understanding, that knowledge, to make better decisions.

Direct Questions

What is the most common theme for the changes you’ve made in your life and in your business: value, force, or pain?

Significant changes are easier to evaluate. How do you determine what leads to small changes: value, force, or pain?

How has the fear of change cost you, personally, financially, or otherwise?

From the Home Quarter

Charles Darwin is often credited for saying, “It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.”
Danny Klinefelter is quoted as saying, “The future will always belong to those who see the possibilities before they become obvious.”
Kim Gerencser is quoted as saying,”(Business) cycles will hurt some, but offer opportunity for others. The difference between who suffers and who prospers is who’s ready.”

Change, like 2017, is coming whether you’re ready for it or not. Buckle up!

My First Tractor

Why Tractors are Sexier than Spreadsheets

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Blame Kenny Chesney. He didn’t sing “She thinks my spreadsheet’s sexy.” Across all genres, I’d bet there is no one immortalizing accountants, bankers, and financial analysts in song.

Chesney’s 1999 release, She Thinks My Tractor’s Sexy is one of my favorites. At a time when farming didn’t get much attention and wasn’t garnering a lot of respect, it was a feel good jam that pumped me up every time I heard it. Seventeen years later, it still does.

Please realize that my opening statement above is tongue-in-cheek. I do not hold Kenny Chesney accountable for why tractors are sexier than spreadsheets. But the question still begs, why are spreadsheets unpopular when compared to tractors? Both are tools with specific uses. Both tools are effective, highly powerful, and multi-functioning. Both can create efficiency that is almost immeasurable.

Business owners can hire someone to run either tool, the tractor or the spreadsheet. If you were to follow one of the cornerstones of my advice, “Do what you do best, and get help for the rest,” then you’ve already likely hired someone to drive the tractor, right?

A long tenured ag professional, who will remain nameless, recently during a conversation with me describing one of his frustrating client experiences quipped,”If driving tractors is more important than running the business, we’re very near the end.” We laughed at the absurdity of the words, yet were stymied by their truth.

In a meeting with a client recently, we were discussing their growing ability to gather data from their operations. They shared the question posed by their equipment specialist “What are you going to do with all this data?” I instantly shot back,”Just collect it; we’ll figure out how to use it.” The goal is to make data collection a natural part of business activity, a habit, not a challenging task on the ever growing “To Do List.”

What we will do with that data, collected in part by/from the tractor, is more than likely import it to a spreadsheet. In that spreadsheet, we will be able to delve into the figures, sort them into a usable format, and ultimately make decisions that are more informed than ever before.

Direct Questions

Does running the tractor take priority over running the spreadsheet? Why?

If you’re not running your spreadsheet, who is? Does this pose a risk in your mind?

Do you make equipment purchase decisions without consulting the spreadsheet?

From the Home Quarter

Informed decisions lead to higher profitability. Higher profitability has a way of reducing risk. Reducing risk increases confidence.

Since spreadsheets make for informed decisions which ultimately increases confidence, and since confidence is sexy, doesn’t that make spreadsheets sexy?

Back to you Mr. Chesney…

 

 

agex-conf

Musings from the AgEx (Agricultural Excellence) Conference

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For those of you who are regular readers of this commentary, you know full well how I feel about farm shows in general and what it takes to draw crowds. Every major farm show on the prairies is so heavily focused on production, when we are already some of the best, if not THE best producers, in the world. Where we are lacking (generally speaking) is on the management and financial side of the business.

That is why I am such a fan of the Agricultural Excellence (AgEx) Conference. It is 2+ days dedicated exclusively to management. No presentations on crops, weeds, fertilizers or equipment; although, had there been, we would likely have seen 4-5 times the number of attendees. Overheard during networking at AgEx:”Want to get 1,000 farmers in the room? Show them some new equipment, give them a hat and a hotdog…that’s how!” If that rhetoric has more than a grain of truth, it sustains my railing on on the problem we have in the industry.

The title of this year’s AgEx was “Plan and Prosper: Set the Course for Farm Success.” This isn’t a typical preach from the podium event; the format included live debate, panel discussions, bear-pit sessions, and a choice of six concurrent workshops. If you couldn’t attend in person, it was broadcast via webinar.

Here are some of the very high level points made at the conference:

  • As a producer, you sell into a global community. Understand how that affects you (and that means deeper than simple “supply and demand.”)
  • If you expect to remain relevant in an ever changing industry, you must face change with confidence not fight it with vengeance.
  • There is still a large gap to bridge between the generations who farm together.
  • There is a TON of great information, resources, and advice available to you as a producer. All you have to do is ask!

There is much work to do, both on your part as producers and business owners, but also on our part as advisors:

  • We (as an industry) need to collectively come to agreement on how to calculate major financial metrics, such as gross margin.
  • We (as advisors) need to create synergies with all of our clients’ other advisors so as to better service each client.
  • We (as advisors) must elevate and consistently deliver the message that success is defined by management…period.
  • We (as an industry) must support each other to provide a unified front against those who would rather we fail.

From the Home Quarter

It is not difficult to find yourself pumped up and motivated when leaving an event like AgEx. The quality of information and networking available is second to none. I rubbed shoulders with a National Director from one of the largest ag accounting firms in Canada, an international farm advisor, a former diplomat, among others…oh, and I now also have a tour guide on PEI in the form of a young potato farmer!

Excellence is within all of us if we choose to focus on it. If we let fear hold us back, our results will show it (and we shouldn’t be surprised.)

As I will continue to say, “Do what you do best, and get help for the rest.”

inadequate working capital

Critical State – Maintaining Inadequate Working Captial

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I’ve gone on record many times saying that I believe that the lack of adequate working capital at the farmgate presents the greatest single risk to the future of many farm businesses.

Working Capital is calculated by subtracting your current liabilities from your current assets.

wrkgcap-graphic

It is important to calculate working capital correctly, not only to satisfy the requirements of your creditors, but for your own management information as well. Overstating your working capital will give false confidence. Understating your working capital could cause you to unnecessarily inject capital into the business, or to miss out on taking advantage of business opportunities.

Maintaining inadequate working capital carries many risks, both direct and indirect, such as:

  1. Relying on operating credit and trade (supplier) credit.
    Heavy, or total, reliance on outside credit to provide access to the capital necessary to run your farm is as great a danger as a reckless crop rotation. There is no guarantee that these credit vehicles will continue to be available in the future as they were in the past. How will the crop get seeded next year if there is no working capital, and no operating credit, available?
  2. Using debt to pay debt.
    Many businesses have plead their case by illustrating that the debt payments were always made on time. What they failed to recognize was that the debt payments made were sourced from an operating line of credit, and therefore using debt to pay debt.
  3. Loss of profit potential.
    By leaning on outside credit, many farmers are forced to sell grain when they need cash to make payments, revolve credit lines, etc. instead of selling grain at a point of opportune profit. Selling grain when you have to instead of when you want to can mean the difference between profit and loss.

In regards to building and protecting working capital, here are just a few of the tactics I offer:

  1. Know your Unit Cost of Production.
    This goes beyond crop inputs. It includes ALL costs to run the farm from fuel, to insurance premiums, to paperclips for the office. Knowing UnitCOP allows you to clearly understand where your profit is made.
  2. Stretch loan and lease amortization periods.
    Interest rates are low, and recently there are hints that it might go lower yet. Stretching your payback period allows you to enjoy making lower payments. This is especially helpful in a year when cash flow & profitability will be tight. Accelerate payments in years when cash is abundant.
  3. Plan with Strategy; Discipline in Tactics.
    Far too often, we see businesses that operate without a plan by simply focusing year over year on operations (getting the work done) and as such, most decisions are made in reaction to a need or want. By building a clear & well-thought out plan, decisions become proactive when employing discipline through the execution of the plan. Deviating from the plan (IE. a great deal on a new pickup!) can jeopardize working capital and future profitability.

Direct Questions

How often do you calculate your working capital? (HINT: it should be monthly at a minimum)

What is your minimum level of working capital to have available? (HINT: it should be 50%-100% of your annual cash costs)

What is your strategy to increase and maintain adequate working capital?

From the Home Quarter

Inadequate working capital causes business owners and managers to make decisions they otherwise wouldn’t. It forces their hand. It takes away their control.
Abundant working capital creates opportunity, allows flexibility, and puts control of the business in the owner’s and/or manager’s hands.
Critical State can be only a breath away when working capital is inadequate.