When agricultural market conditions deteriorate, we need to keep our focus on the “WIN” or What’s Important Now. Taking the time to write out your farm’s current situation may help you avoid financial missteps as you navigate the challenging conditions ahead.
The long-term health and success of your family and farm operation depends on an accurate assessment of the farm’s existing financial position. Tactical decisions based on quality information are crucial for a successful outcome. Seven key steps can help ensure an accurate assessment of your farm’s existing strengths and vitality, while also revealing areas of concern. These concerns are sometimes viewed as opportunities.
- Know the Value of Your Assets – Create an accurate and updated list of the values of all current, intermediate, and long-term assets. Do not forget to include feed, livestock, machinery, land, etc. Assigning realistic values to these assets helps establish what all of your time, effort, and sweat equity has yielded over the years.
- Understand Your Obligations – Develop a comprehensive list of all outstanding creditors. Differentiate the secured and unsecured debt. Secured debt (e.g., mortgages, auto loans) has an asset or collateral put up to back the loan. Make sure to record the current amount owed, minimum payment amount, and when those items are due, and prioritize the handling of these obligations.
- Communicate Openly and Honestly – Have conversations with the necessary professionals including your lender, accountant, financial consultant, and attorney. Be open and honest with them in order to get the best advice. Remember, they are there to support and assist you in the process of determining your current financial position and the subsequent options moving forward.
- Determine Your Family Living Expense – Establish the baseline for what your family must have in order to live. Be realistic and don’t underestimate what it takes for your family to function in a happy and healthy manner. Prioritize the needs of the family while minimizing the wants as you navigate this challenging time.
- Put a Stop to New or Unnecessary Contracts and Spending – Evaluate the farm’s current position before acquiring any additional financial burden or strain. Accepting new or unwarranted contracts may impede the farms ability to achieve the financial stability and resiliency required during difficult times.
- Review and Understand Your Family, Farm, and Life Goals – Create and review your goals. Re-examine where the family wants to be in 1 year, 5 years, and 10 years down the road. Are these goals and expectations being met? If not, it’s time to take steps to change that.
- Plan Your Work and Work Your Plan – Develop an action plan. Determine exactly what needs to be done, assign someone to be responsible for it, and schedule a target date. Plans are not complete until you’ve decided how to implement them. Check-in periodically to monitor and re-adjust your plans as needed. Celebrate your successes as your tasks and goals are accomplished.
Completing these seven steps may be valuable to virtually all business owners in order to help them take control of their financial situation and to turn areas of concern into business opportunities.