How farmers can plan for financial challenges
August 31, 2020

How farmers can plan for financial challenges

Farm income in the U.S. has been under a lot of pressure as of late. From the global pandemic, to ongoing trade issues, to natural disasters, farmers have had to weather plenty of challenges to their operations in 2020.

Of course, this is not the first time farmers have had to overcome hurdles that lead to financial challenges. It will not be the last time, either. It’s a simple truth that there is a lot of uncertainty in agriculture.

Uncertainty can be countered with solid planning, though, especially on the financial end. Here are several tips for managing farm finances during times of uncertainty.

Outlook for 2021 is not clear for farmers

Though recent federal aid has been helpful in alleviating some of the financial stressors farmers have been facing, the outlook for 2021 shows that more difficulty could be in store.

Federal relief payments scheduled to end in 2021, which means farmers need to be thinking ahead and taking steps now to be better prepared to withstand any financial challenges. Those challenges could be alleviated, according to Successful Farming, either internally by cutting costs in operations or by external factors, such as a rebound in commodity prices or another round of federal aid.

Those external factors are not looking very likely at the moment, though. That is why farmers need to follow additional steps to stay in good shape with their finances.

Think twice about debt

When money may become tighter, it’s important to think twice about using debt to finance additional purchases. If the cash is not there, then maybe it is best not to make certain purchases – unless absolutely critical for operations.

Another helpful way to decide whether to go forward with taking on debt is if the purchase will contribute significantly enough to improving cash flow for your farming operation. To put it another way: Will the purchase pay for itself quickly enough?

Farmers should also look at whether they can finance debt in a way that long-term debts can help pay down short-term debts.

Tighten your belt

Whether hard times are upon you now or could be coming down the line, knowing how to tighten your belt and cut out unnecessary expenses is beneficial toward supporting the business’s bottom line.

Controlling your expenses is not easy and it’s time consuming. However, the practice literally pays off. Look at all aspects of the operation and your personal life to see how you can cut back. Closely examine living expenses, equipment purchases, spending habits, investment strategies and more.

The result of pulling the belt a little tighter for the business can be the difference between staying afloat or going under.

While reducing costs, look for ways to increase revenue

As you investigate ways to tighten your belt and cut costs on the farm you should also be looking at ways to increase revenues of the operation. There are many creative ways to generate a little extra money.

For example, are there farming strategies or techniques you could adopt that will free up certain equipment because it won’t be needed anymore? That equipment could later be sold.

A few ways to do this would be converting to no-till or strip-till, hiring our certain functions of farming rather than having equipment to do those tasks yourself, or looking to perform those functions for others since you already have that equipment.

Don’t kick the can down the road

If your financial situation takes a turn for the worse, or even looks as though it could be headed in a bad direction, then it is best to tackle any problems right away. Don’t kick the can down the road thinking you can avoid the issue. It will only compound the negative impact.

Talk to a banker or financial advisor right away whenever a problem or potential problem comes to light. They can help you develop a strategy to reduce that negative impact as quickly as possible and keep your business going.

Uncertainty should be managed with good planning

Having a sound business plan and financial strategy is one of the best ways to deal with uncertainty of the ag economy. Now, even the best plans and strategies can’t account for all unforeseen events, but they may provide a road map for how to proceed when a farmer finds challenges in his or her path.

When a farmer is putting together a business plan, they need to try to prepare for these events that could get in the way of a successful operation. These events that get in the way of going through with the business plan are called constraints.

Farmers need to think two steps ahead when putting together their business plans. They must identify possible constraints that they may encounter. Farmers also need to include in their strategy how they will react to and attempt to overcome constraints.

Don’t let indecision bring you down

Any business person, whether they are a farmer or are involved in a different industry entirely, can fall victim to paralysis by analysis.

That’s when a person sits and stews on an important decision that must be made and ends up not doing anything at all. They are so worried about making the right versus wrong decision that they make no decision.

The best way to alleviate this struggle is to seek out trusted advisors or friends that can give input from an outside perspective. The best people to have in your corner are the ones who can provide that valuable advice, but also know that it is your decision and yours alone to make in the end.

Why you should work with Cotton Grave Farm Management

Cotton Grave specializes in all areas of farm management, including financial management. Farmers and landowners who partner with our firm enjoy a reliable firm with experts that can provide the information, data and tools needed to make sound financial decisions for their farming operations.

Request a complimentary consultation to see how we can help you succeed – even in challenging times.

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