How to stay on top of bills without losing any sleep
When grain prices get really low and margins get tight, producers are faced with tough decisions. Some might even have a hard time paying their bills this year.
What should you do if you don’t have enough cash to satisfy outstanding debts? Who should you pay first? How can you get more time? The short answer: It depends. Financial crises are always unique, so they require customized solutions, says Bob Milligan, a senior consultant with Dairy Strategies. Following a few key steps, though, will help you survive those challenges without robbing Peter to pay Paul.
First, face reality head-on.
“When you get into these kinds of situations, you’re pretty frustrated and pretty down,” Milligan points out. “It’s really easy to procrastinate, but you can’t.”
In 2009, Milligan says, many dairy farms delayed dealing with their financial problems. By the time they did something about them, it was too late. “Don’t let that happen to you,” he warns.
Next, determine if the issue you face is a short-term or a long-term problem. “Are we short on cash because we had a low yield last year or the price is particularly low, or is this a sign that our business isn’t sustainable?” Milligan asks.
One requires a different course of action than the other. In the text below, Milligan and Ryan Bristle, an Iowa corn and soybean farmer and consultant with Russell Consulting Group, contrast the two situations and detail how your farm can stay focused, make payments and take actions necessary to sustain operations amid uncertainty.
Adopt Near-Term Solutions
Lack of ordinary cash flow is one example of a short-term problem resulting from unusually low commodity prices, Milligan says. If you find yourself facing this scenario, take the following steps:
1. Don’t stop paying your bills. You have to continue making payments, Milligan says. It’s also a good idea to openly communicate your situation with creditors. “I don’t think you should ever not pay someone,” he says. “The first thing you should do is talk to them.”
2. Find more cash. There’s still a lot of old-crop owned by farmers,” Bristle says. “The easiest way to generate cash right now is to sell it.” Another option is to sell idle machinery, Milligan says. He recommends farmers develop a list of assets they could sell for quick cash.
3. Talk to your lender. “If this is a short-term problem, the lender may be willing to help convert some loans to interest-only for a (limited) period of time,” Milligan says. The other possibility is to roll short-term loans into medium-term loans, reducing monthly payments.
4. Prioritize your payments. “What are you contractually obligated to pay?” Bristle asks. Pay those obligations first. Then, it’s important to pay down higher-interest debt in the short term. “We really want to look at it from a cash-flow standpoint,” Bristle says.
Restructure Failing Entities
If your money problems involve more than just cash flow, you might need to reconsider the financial sustainability of your business. Milligan and Bristle say these steps can help you restructure:
1. Get some perspective. “Determine if there is some form of the business that is sustainable,” Milligan says. Restructuring isn’t what many farmers want to do, but it could allow them to recover.
2. Set emotions aside. Farmers who find they need to restructure should not let their emotions get the best of them. “Making business decisions from a business perspective rather than an emotional perspective will be better in the long run,” Bristle says.
3. Determine what you can sell. Know which assets are not held by the bank, Milligan says. “A farm we are currently working with to get out of bankruptcy has most of its assets tied into loans, but their young stock isn’t,” he says. “We are using those assets to help them restructure.”
4. Develop a bullet-proof business plan. What you do in the good times reveals itself in the bad times, Bristle explains. He encourages clients to take a long-term view. “If you are losing money this year, you need to know how, so you can avoid it next year,” he says.
By Ben Potter
9 Credit Card Do’s and Don’ts
Thinking about using a credit card for business expenses to rack up airline miles or points for a new pick-up truck? Go for it—but don’t inadvertently damage your credit. “Credit cards are great tools, but like any tool, they have to be used wisely,” says Alan Hoskins, president of American Farm Mortgages and Financial Services. He shares nine do’s and don’ts to help farmers navigate a credit-card strategy that avoids headache and heartache.
- Understand your credit line and interest rates can change. Be aware of introductory 0% interest rates, and know when initial offers will expire.
- Pay your balance in full each month. “It truly is a 0% interest loan when you do this,” Hoskins says.
- Communicate with lenders about how you’re using credit cards on the farm. They’ll benefit from knowing how and why you’re using them.
- Ensure you’re getting the benefits you think you are. Be aware of terms and conditions.
- Use credit cards for cash advances. “You’re paying interest immediately,” Hoskins says. “There’s no grace period.”
- Hide how credit cards are being used from other cardholders on each account. Few things will break up a business or even a marriage faster than dishonesty.
- Use credit cards for impulse purchases. That new big-screen TV will be fun to own, but how painful will the bill be when it lands in the mail next month?
- Close accounts you’ve had for a long time just because you aren’t using them anymore. It will have a temporary negative impact on your credit score.
- Open a card just to get a discount on something. That is another practice that temporarily bumps down your credit score.