Reality speaks - 1/31/2024 15:34

Think in terms of working capital to gross sales. Minimum needs to be 25-30% of your gross sales.

So if your grossing $2,000,000 rule of thumb is $500-$600,000 of working capital. Thats not cash. Its the difference between your marketable inventories and cash and prepaids etc and the Line of credit balance, Payables if any, accrued interest and the principal you're going to payback in 12 months on your term loans (tractor loan, Farm mortgage etc)

This is again a rule of thumb each operation has its own unique characteristics the might make their situation different than yours. IE off farm income supports a good amount of the operation. Or dairy operation that has a very consistent monthly cash flow vs Annual grain sale operation.

There is no magic amount that it needs to be, It can flocculate from year to year as well. and the banker will never ever tell you you have too much. but he will or should tell you if you do not have enough.

It's good that your thinking of it.