Step back and make a strategy for paying bills when there’s not enough to cover them
When margins get tight, producers are faced with tough decisions. Some might even have a hard time paying their bills this year.
First, determine if the issue is a short- or long-term problem, says Bob Milligan, a consultant with Dairy Strategies. “Are you short because you had a low yield or the price is particularly low, or is this a sign your business isn’t sustainable?” Milligan asks.
One requires a different course of action than the other. Below, Milligan and Ryan Bristle, an Iowa farmer and consultant with Russell Consulting Group, contrast the two situations and detail how your farm can stay focused, make payments and sustain operations.
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. Communicate your situation with creditors. “The first thing you should do is talk to them,” Milligan says.
2. Find more cash. If you’re holding on to old crop, the easiest way to generate cash is to sell it, Bristle says. Or sell idle machinery, Milligan adds. Make a list of assets you could sell for quick cash.
3. Talk to your lender. “If this is short-term, he might convert loans to interest-only for a time,” Milligan says. Or 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 bills first. Then, it’s important to pay down higher-interest debt. “We really want to look at it from a cash-flow standpoint,” Bristle says.
Restructure failing entities. If your problems involve more than cash flow, reconsider your financial sustainability. These steps can help you:
1. Get some perspective. “Determine if there is some form of the business that is sustainable,” Milligan says.
2. Determine what you can sell. Know which assets are not held by the bank, Milligan notes. “A farm we are 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.”
3. Develop a bullet-proof business plan. What you do in the good times reveals itself in the bad times, Bristle explains. “If you are losing money this year, you need to know how, so you can avoid it next year,” he says.
By Ben Potter
8 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 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 eight 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% rates and when 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.
- 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.”
- 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 hurt your credit score.
- Open a card just to get a discount on something. That is another practice that weighs down your credit score.