Tough financial times have hit communities across the United States and beyond, but the problems are not just urban and suburban. Many farm families have been hit hard by economic forces, many of which were beyond their control.
“From a farm financial management point of view, I would urge people not to retreat from or deny their financial challenges, but rather to objectively assess and understand them,” says Dan O’Brien, Kansas State University extension agricultural economist based in Colby, Kan. “I think this would help them to take the steps necessary to deal with and remedy critical issues facing their family farming operations. They need sound financial advice in a time like this — and they will need accurate financial numbers to be able to assess their farm situation.”
Keep your professional advisors in the loop, and communicate with them regularly, advises LaVell Winsor, also an economist with Kansas State University’s Farm Analyst program. “A lot of the problems right now are industry problems, but producers should identify any ‘holes’ in their operation, and take steps to improve those problems.”
Key stakeholders need to have a clear understanding of where the operation is financially, Winsor says. She recommends that producers analyze their expenses and reduce them where possible.
“If you're not familiar with risk management tools such as hedging, learn now and lock in profits when available,” she adds.
“Keep a close eye on money being taken out of the business for family living or other expenses and if you don’t already have one, now’s the time to create a family budget,” Winsor suggests.
Kansas State University agricultural economist Duane Hund suggests three key steps that farm operators should take, especially in difficult times.
- Farmers should know where they stand financially and keep close tabs on equity positions, as well as profit and loss statements at least on a quarterly basis if not monthly, he says. That takes a lot of accounting but it is vital to keep close reins on an adverse situation.
- “Second, I encourage producers to carefully budget for personal living needs,” he adds. “For example, compare the situation to a household with two wage earners where one is laid off. When income is reduced or cut in half in this example, everyone in the family knows they must instantly rally together and learn what they can do to live on one person’s paycheck. It's easier to do in this example because they have steady income week to week. Now compare this to a farm family whose paychecks come once or twice a year at harvest time. The farm family is often challenged to budget accurately due to the fluctuation in income. They are used to borrowing from the bank to plant their crops and pay living expenses so they don't always have as tight a grasp on the personal living withdrawals.
- “Finally, and this is tough — every family needs to come to a point where they say ‘enough is enough. We can't adversely impact our equity position any further because if we do, we may reach the point of no return,’” Hund says. “It's one thing to work hard and break even. It's quite another to work hard and lose money in the process. That’s like paying for the privilege to work instead of the other way around.”