BY: BETSY JENSEN, NCTC FARM BUSINESS MANAGEMENT INSTRUCTOR
As farmers review their finances from 2016, they may discover a few surprises. Low commodity and livestock prices are placing significant financial pressure on farms. Some areas were fortunate to have record crop yields, easing the pain of low prices. Other areas suffered from excess moisture, and mediocre yields and prices are leaving farms short of cash.
Cash flow and working capital are two primary concerns for farms in 2017. Farms have equity on paper, often from land and machinery values. Unfortunately you cannot pay bills using equity; you must have cash.
The Farm Business Management program at Northland Community and Technical College is teaching farmers how to better structure and understand their balance sheet. Current, intermediate and long term assets can add up to a positive net worth but there needs to be balance between those categories and Northland can help guide you through this.
Farms should have a mixture of cash and crop inventory, equity in machinery and equity in land. Too often the balance sheets become skewed in one asset category. Debt may need to be restructured to restore balance.
Restructuring debt and relying on equity is not always a solution. Farms need to look ahead at their 2017 and long-term cash flows. Will the farm generate enough cash to pay expenses, and make debt payments? That can be difficult with low commodity prices.
If there isn’t enough cash, can you find an opportunity to reduce expenses, add to revenue with another enterprise, or postpone capital purchases?
A statewide database of farm business management data is available at www.finbin.umn.edu. If farms are looking to cut expenses, it’s helpful to compare the farm to similar farms. It is often overhead expenses like labor, insurance and machinery depreciation that vary greatly by farm, and may be able to be reduced without impacting production.
Our region depends on agriculture and Northland has a network of farm business instructors located near you that can help you achieve your goals for 2017. Check out Northland’s Farm Business Management options.