The economic reset of the past few years is increasing farm financial stress. “This is not the 80s, but it is an era that will be remembered,” says Dan Gieseke, Missouri farm loan chief for USDA’s Farm Service Agency.
Are your customers on the edge of profitability and sustainability? Here are strategies for a proactive farm business plan.
Identify The Cash Flow Shortfall
First, farmers should determine the “why” behind their operation's financial challenges, Gieseke says.
“We have to quit saying the ‘why’ is poor prices,” he explains. “Illness and divorce can be a hit, but the biggest hit is expenses: operating, capital and living.”
Analyze financial statements, expenses and debt structure, Gieseke suggests. If farmers constantly struggle in this area, they should not be afraid to ask their lender for help.
Project Family Living Expenses
Now is the time to be financially conservative, says Matt Roberts, founder of The Kernmantle Group, an economics research firm. Family living expenses for farmers have increased dramatically in the past decade. While they are hard to take down, he notes, farmers can analyze where and how they are spending.
Start by creating a realistic projection for family living expenses, Gieseke recommends. “$24,000 a year of family living for a family of four is not realistic,” he says. “Know the actual number. Then you can decide if you need to go on a family living expense diet.”
How To Increase Net Farm Income
Every financial decision should build wealth, Roberts says. “The first part of building wealth is building working capital,” he says.
To increase net farm income, farmers might have to make tough personal and business decisions, Gieseke says. That can include finding off-farm employment or selling non-productive assets.
Explore and complete a financial analysis on a new niche project or service, Gieseke suggests. “Straight corn and beans are not the way to building wealth,” he says. “Innovators and those who are willing to change will succeed.”
Evaluate Every Cash-Rent Agreement
Are farmers making money on their cash-rented ground? If not, discuss it's time to discuss financial situation with landlords, Roberts recommends.
Farmers can share cost of production range across all fields, he suggests. Then show each landlord how his or her farm fits in that range. This transparency will build trust and help make the farmer's case for adjusting rental rates. Farmers should not be afraid to walk away from an unprofitable situation.