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As a farmer, you know that the agricultural economy is ever-changing. One year it may have a positive financial outlook, while the next year it may be a bit more challenging. No matter what the outcome, you can take steps now to be better prepared financially and reduce your debt for your growing operation. It’s important to make sure your finances are in order and you keep the lines of communication open with your lender.
Follow these 10 financial considerations to make sure your farming operation thrives in today’s economy.
Carefully examine every capital purchase that will require additional debt. Ask yourself if the expenditure will generate the cash flow needed to pay for itself. If the new item can’t create enough new cash to pay for itself over a reasonable period of time, defer the purchase.
Without a budget, you’ll be financially lost. Use a farm budget to track all income and expenses and update it frequently—it will help you maintain the direction of the business.
Are you getting the maximum return from your investments? If not, why? Are your non-farm assets generating a maximum return? If not, can any be sold?
Finance long-term assets, like real estate, with long-term debt. Finance shorter-term assets, like machinery, with shorter-term debt. Is it possible to increase your long-term debt to pay down your short-term debt? When deciding to use your long-term equity, make sure your need is extremely significant.
Have current inventories, cash flows and balance sheets ready, and provide the information your banker requests. If you are having financial problems, put your thoughts about how to resolve them on paper so your banker can review them with you.
Your debt can be restructured over a longer period at a lower rate if the USDA provides a credit guarantee to the bank. If your banker does not know about the programs, set up an appointment for you both to visit a USDA Service Center.
Increasing your deductibles can lower your premium. Carefully review every item on your inventory list and consider eliminating coverage on obsolete or low-risk items.
Many whole-life policies contain provisions that allow you to borrow against or deduct premium costs from the cash surrender value at low rates. What type of life insurance do you have? Is it worthwhile to maintain a costly whole life policy when you could get similar coverage from a less expensive term policy?
Talk to your banker early and often. A good way to avoid serious financial problems is to identify and resolve them early. Take a team approach; create a personal “board of directors” of people you know and respect—including your banker—who can be your sounding board.
Think through business problems by temporarily getting away from them. Take a weekend off, or go see a movie. However you do it, it is important for you to balance and shift your focus to other activities—it will make your home team stronger.
No matter what the state of the economy is like, it’s important to follow these tips to make sure your finances are in order. If you’re still dealing with farmer financial problems, check out more articles on the Biz Buzz blog or reach out to one of our Ag Bankers today.
