Farm Management Minute: Evaluating operations in tough times
November 11, 2016
Traveling through my territory these past few weeks, I am reminded of days gone by.
This is not necessarily a good thing, as the days gone by that have been on my mind is the 1980s. I was just starting my career as an agriculture education instructor when the farm crisis hit. I helped write resumes for jobs as farmers transitioned from full-time farming to full-time careers off the farm. It was a stressful time in their lives, they felt they had no valuable skills, and there were many sleepless nights.
So, why was I remembering this time as I drove the roads in 2016? I see more and more equipment for sale along the roads. I hear from more bankers with concerns about their clients. Every conversation at the sale barn, coffee shop, etc. is about how to survive in these tough times. The only thing in the producers' favor is the interest rates are still low.
So, how do we survive in these tough times? My first recommendation is to get finances in order. The chances of a lender working with a producer increases if there are good financial records for the operation. Many of the students who work with the South Dakota Center for Farm/Ranch Management share income/expense statements with their bankers on a quarterly basis. It is easy for farmers/ranchers to work outside, doing something they love, versus working on farm accounting, but financial accounting is key to the success of the operation. Marketing is made a bit easier when the operating and fixed costs for an enterprise are exact, not just an estimate.
The second recommendation is to look at the operation's cash flow. Are there ways to generate income throughout the year? Can you change an enterprise to spread the income? Can an enterprise be added? Is there an opportunity to do custom work? By generating income in every month of the year, if it can be accomplished, reduces the amount of operating capital that needs to be borrowed, reducing the amount of interest that will be owed.
A third recommendation is to make sure insurance is in place. Crop, forage, and livestock insurance is essential if an operation is at risk. Life and health insurance are also important to keep up-to-date. A death with no life insurance or a medical issue with no adequate health insurance can put an operation in jeopardy.
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Fourth, family living has to be addressed. Farm and ranch families are still adjusting to the heavy hit to their income, and nonessential spending will need to be evaluated and adjusted. That is not to say there should be no entertainment or eating out, just try to cut down on the frequency. Major expenditures or purchases may need to be covered by off-farm income.
Again, I have no cut and dried answers, just some areas a farmer or rancher may want to evaluate. If any producer would like more information on how the SD Center of Farm and Ranch Management can help your operation, contact the SDCFRM office or any of our instructors, call 1-605-995-3098 or email us at firstname.lastname@example.org.