Financial Tips For Farmers
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.
1. Cash Is King For Ag Operations
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.
2. Let A Budget Be Your Farm’s Financial Road Map
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.
3. Analyze Your Farm’s Financial Position & Performance
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?
4. Examine Your Debt Structure
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.
5. Prepare For Your Financial Review With Your Banker
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.
6. Ask Your Banker About The USDA’s Guaranteed Farm & Rural Development Loan Programs
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.
7. Review Your Operation’s Hazard & Fire Insurance Coverage
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.
8. Examine Your Life Insurance Policies
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?
9. Deal With Financial Problems Immediately
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.
10. Keep A Clear Perspective
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.
More Agribusiness Financial Management Tips
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.
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