10 Financial Mistakes in Aquaculture That Can Sink Your Business

Aquaculture is an activity with enormous potential for growth and profitability; however, success does not only depend on technical excellence in animal management. The financial health of a project is equally crucial, and missteps in this area can lead to failure, even with good productivity. Identifying and avoiding financial pitfalls is, therefore, an essential task for any producer aiming for the sustainability and growth of their business.

Many promising ventures fail because they do not pay due attention to the management of their resources. From underestimating operational costs to inadequate product pricing, there are various flaws that can compromise cash flow and long-term viability. Knowing these financial mistakes in aquaculture is the first step towards building a solid, resilient, and profitable operation.

1. Neglecting Initial Financial Planning

One of the most common and dangerous errors is starting a project without detailed financial planning. Many producers, driven by enthusiasm, focus only on the technical aspects of production and forget to map out all necessary investments, projections of fixed and variable costs, and revenue estimates. Without this foundation, any unforeseen event can turn into an insurmountable financial crisis.

Planning should include a comprehensive budget, from land acquisition and licenses, through pond construction, equipment purchase, to the working capital needed to cover the first production cycles. Furthermore, it is critical that this planning is realistic, based on market data and updated quotes, and not on excessive optimism.

2. Underestimating Ongoing Operational Costs

After the initial investment, operational costs (OPEX) become the primary focus of attention. Underestimating expenses such as electricity for aeration, equipment maintenance, labor, inputs (probiotics, pH correctors), and especially feed, is a grave error. These recurring costs directly impact the profit margin of each cycle.

To avoid surprises, it is vital to monitor and record every expense. Using a management system, such as Despesca, allows for precise control of these costs, offering a clear view of where money is being invested. Consequently, producers can identify waste and make more strategic decisions to optimize resources and increase profitability.

3. Lack of Rigorous Control over Feed Costs

Feed represents, in most aquaculture projects, between 50% and 70% of the total production cost. Any oversight in this area has a gigantic financial impact. Mistakes such as purchasing inappropriate feed for the development stage, improper storage leading to quality loss and waste, or a lack of control over feed conversion ratio (FCR), can drastically inflate costs.

Rigorous control involves recording all feeding, constant monitoring of biomass, and accurate calculation of FCR. Management tools help automate this control, providing data to adjust feeding strategies, choose suppliers with the best cost-benefit, and ensure that every pound of feed is converted into efficient animal growth.

4. Ignoring Cash Flow Management

Selling well does not necessarily mean having good financial health. Cash flow management is what ensures that the farm has money available to meet its commitments, such as paying suppliers, salaries, and other bills. The mistake here is not monitoring the inflow and outflow of funds, resulting in a lack of liquidity even when the operation is profitable on paper.

Effective cash flow control involves recording all transactions, projecting future revenues and expenses, and planning for periods of low income, such as during the off-season. This allows the producer to anticipate working capital needs and avoid resorting to emergency loans with high interest rates, protecting the business’s margin.

5. Absence of an Emergency Fund

Aquaculture is an activity subject to unforeseen events, such as diseases that can decimate a pond, extreme weather problems, or critical failures in essential equipment (aerators, pumps). Not having a financial reserve to cover these emergencies is an enormous risk, as it can paralyze production or force the producer to incur debt during times of crisis.

An emergency fund, equivalent to a few months of operational costs, functions like insurance. It provides the peace of mind and resources needed to overcome unexpected challenges without compromising the continuity of the project. Creating this fund should be an integral part of financial planning from the outset.

6. Inadequate Investment in Technology

Trying to save money on quality technology and equipment might seem like a good idea in the short term, but it usually results in much higher costs in the future. Inefficient equipment consumes more energy, breaks down more frequently, and can compromise water quality, leading to production losses. Likewise, avoiding the adoption of monitoring and management technologies leads to decisions based on guesswork, not data.

Investing in efficient aerators, sensors for parameter monitoring, and, crucially, in robust management software, is not a cost, but an investment in efficiency, precision, and safety. These tools optimize input usage, reduce risks, and provide valuable information for more assertive decision-making.

7. Poor Inventory Management

Inventory management goes beyond feed. It involves controlling post-larvae or fingerlings, probiotics, medications, and other inputs. Over-purchasing can lead to losses due to expiration and ties up capital that could be used in other areas. On the other hand, the lack of a critical input at the right time can delay or harm an entire production cycle.

Efficient inventory management balances the availability of inputs with production demand. Management software, like Despesca, offers functionalities to control inflows and outflows, define reorder points, and avoid both excess and shortage of products, optimizing working capital.

8. Incorrect Product Pricing

Setting the sales price based solely on competitor values, without a deep understanding of one’s own production costs, is one of the most dangerous financial mistakes in aquaculture. This practice can lead to selling products with minimal profit margins or, worse, at a loss, making the operation unsustainable in the long run.

Correct pricing must start with a detailed calculation of all costs involved in production (fixed and variable) to determine the cost per pound of the animal. From this number, the desired profit margin is added, also considering market conditions. Only with this knowledge can the producer negotiate strategically and ensure the profitability of their business.

9. Failure to Conduct Economic Feasibility Analyses

Before starting a project or undertaking a major expansion, it is crucial to conduct an economic feasibility analysis. This study evaluates the potential return on investment, considering all costs, revenue projections, and indicators such as NPV (Net Present Value) and IRR (Internal Rate of Return). Ignoring this step is like sailing without a map.

The Despesca article on Economic Feasibility Analysis (assuming an English version or similar structure on the site) offers a step-by-step guide on how to perform this planning. This analysis provides a solid basis for decision-making, helps identify potential risks, and is fundamental for attracting financing, as it demonstrates the project’s soundness to investors and financial institutions.

10. Attempting to Manage Everything in Spreadsheets

As production grows, managing all financial, inventory, and management information in spreadsheets becomes inefficient and risky. Spreadsheets are susceptible to data entry errors, do not integrate information automatically, and make it difficult to generate consolidated reports, which can mask significant financial problems.

Adopting specialized aquaculture management software centralizes all information in one place, automates cost calculations and performance indicators (such as FCR and biomass), and provides accurate real-time reports. This tool transforms raw data into business intelligence, allowing for professional and proactive management, crucial for avoiding financial mistakes in aquaculture and ensuring the sustainable success of the operation.