10 Ways to Manage Your Farm Finances for the "Down" Years
Farming is an unpredictable business, and farmers are no strangers to the ups and downs of the market.
While it's important to enjoy the good times, it's equally important to plan ahead in preparation for the potential bad times at your ag operation. Here are some recommended strategies to help proactively manage your farm finances for the "down" years.
1. Maintain a Strong Level of Liquidity
Before using capital with higher costs, it's helpful to have a cushion in the form of cash reserves. This cash safety net can help you weather any financial storm that might come your way.
2. Know Your Production Costs
By having a strong grasp on your operation’s production costs, you can make informed strategic decisions about when to sell and at what price.
3. Refinance Existing Debt on More Favorable Terms
Refinancing can sometimes help you lower your total annual payments in order to increase the cash available for other purposes.
4. Reduce Your Cost Structure
Selling excess equipment, using alternative sources for crop inputs and purchasing machinery in collaboration with other operations are potential ways to reduce your cost structure.
5. Diversify Your Income Sources
Consider incorporating value-added crops, growing alternative crops on non-productive land, or pursuing other new revenue streams like livestock, trucking, partnerships with local businesses and markets, or other unique alternatives to diversify your income sources and potential bring in additional revenue.
6. Pursue More Custom Work
By doing more custom work at your ag operation, you can potentially add revenue without additional capital requirements. However, it’s important that you charge enough for this work in order to be profitable. Spend time researching and considering a fair rate to ensure your new strategy will be profitable before pursuing this approach.
7. Consider Off-Farm Income
Providing additional income and access to benefits can help keep your farm finances in good shape. Evaluate off-farm jobs that can provide a steady stream of income.
8. Lower Family Living Expenses
It's important to look at how much of your farm income is used to support personal expenses. Reducing family living expenses can free up money to use for your ag operation.
9. Maintain Strong Relationships with Lenders and Landlords
Staying in consistent communication with lenders and landlords (and maintaining a positive relationship with them) is beneficial in the event you need to renegotiate terms.
10. Seek Advice
It's wise to ask people who have expertise in areas beyond your scope of experience for their guidance. Ask prior generations how they successfully managed downturns and seek out advice from professionals in the industry.
Without a doubt, managing farm finances during the “down” years can be challenging. However, these tips can hopefully serve as useful tools to help your ag operation stay prepared for any financial hurdles that may come your way.
Financial Solutions from FBN® Finance
With an average of 15+ years’ experience each in Ag finance, FBN loan advisors are ready to talk to you regarding any questions you may have related to your farm finances, potential financial solutions or other financial strategies for your ag operation. Click here, complete the brief form below, or call 866-619-3080 to speak to a member of our team today.
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