Highly Effective Financial Habits

May 23, 2018 04:10 AM

How to plan for growth 

All business plans must be calibrated to today’s economic reality. Although a challenging profit picture is likely halting immediate growth plans for many producers, smart financial guidelines can help you continue to march toward business goals. 

“Financial success takes planning and consistent business practices,” says Jonathan Carter, associate vice president of Growing Forward, Farm Credit Mid-America. “There are key steps farmers can take to ensure the longevity of their operations.”

First, write a business plan every year. “Look at your net income versus your net expenses from the past year, and consider the crop or livestock plans you have in mind,” Carter recommends. “Using this assessment, make an informed estimate based on what you know and predict if your revenue will increase or decrease.”

Then you can plan operational investments or needed cuts. Regularly revisit this plan to make adjustments based on unplanned expenses or income. A budget will also clarify your debt obligations. 

“Look at those ahead of time,” says Bill Watson, agribusiness division president at UMB Bank in Wichita, Kan. “Ensure you have cash resources to make those payments. As a young farmer, you cannot afford to miss those payments.”

Tap Experts. Lenders understand that in general, young farmers have lower net worth, more leverage and more precarious financial positions, says Watson, a 40-year banking veteran. Therefore, it is vital that young farmers communicate with their lenders.

“The worst thing a young farmer can do is to simply miss a loan payment and not contact their banker,” he says. “It doesn’t matter if the news is good, bad or mixed, they need to communicate.”

Banks with high percentages of ag credit are under scrutiny for their loan quality, Watson says. Don’t be surprised when your banker asks you for more financial information. In fact, it can be a benefit. Have your lender walk through your financials and point out areas of concern, Watson suggests. His or her advice can be an asset to your business. 

Through the business-planning process, young farmers can determine their own strengths and weaknesses, says Scott Brown, an economist at the University of Missouri. That will help you determine other experts to enlist.

“Make sure your network is strong,” he says. “There are so many places to turn for advice. If you aren’t a lowest-cost beef producer, who in the county would you like to mimic and get into your network?” 

Young farmers should be ambitious about the growth of their operation but understand financial success takes time, Brown advises.

“Young farmers can’t expect to have it all in the beginning,” he says. “Now is when you want to build a war chest so when you do want to purchase land, you are in a better financial position to do it.”

Calibrate Goals. Understand how personal debt affects your farm. “Don’t let excessive family living keep you from long-term financial goals,” Brown says. “In a good year, you want to reward yourself. But be careful about how much you spend versus putting away.”

The upside of tough economic times is they push farmers to fine-tune their finances for growth. 

“With where we are, very few operators—whether they are large or little—are looking at expansion,” Watson points out. “Now is not the time to be using limited capital on new land. It is 
the time to meet your obligations and watch expenses with an extremely sharp pencil.”  


This article originally appeared in the May 2017 issues of Top Producer.

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