Three ways to reduce financial stress on the farm


It’s a stressful world out there, there’s no doubt about it. Whether it be personal stress, emotional stress, or financial stress…the list goes on.

One of the stressors we do have some power to dial down a bit, says Stuart Person, senior vice president of MNP, is financial stress.

This can be done through three different approaches: Ag financial literacy/reporting, preparing an annual risk management plan, and preparing an annual business plan to monitor performance throughout the year.

Person says ag financial literacy can be improved a number of different ways, but one of the top methods is to ask continually questions.

“Working more with your advisors or your accountant, and asking them to maybe further explain some of the information to you (will help),” he explains. “Getting more invested in the overall record keeping of your farm will increase knowledge in that area.”

On the reporting side, Person says every farmer should have an accrued financial statement for their operation — which to some, may seem elementary, but there’s still plenty of farms that do not do this.

“That information there on the cash basis does not actually tell you whether you made money or not unless you’ve truly sold all of your commodities that you produced in the same year you produced it and incurred those expenses,” he explains. “You need a set of accrued financial statements to that regardless of when you grew the crop, when you sold the crop, when you raised the livestock, it doesn’t matter. We’re going to take a look at a specific year being your fiscal year. How did you do on the farm that year from a profitability point of view?” (Story continues below video)

When making a business plan, there are some very common mistakes that farm owners tend to make. One way to limit your financial stress, is to ensure you are not making the same mistakes, such as ignoring succession planning, he says.

“Whether you’re at the stage where succession is needing to happen, or whether you are looking at a young child who’s going to maybe be that successor someday, you should always have that in mind when you’re doing your plans, as to what we are doing here for the next generation. How are we setting the stage for that to happen?”

Another common mistake in business planning, is a lack of risk management within the business plan. Plenty of people often don’t pay attention to the what if’s of the world, and what they will do if the unthinkable happens.

“If you haven’t done something to protect your revenue numbers, in terms of a futures or forward contract, you’re fully exposed on that revenue number. And if grain prices, or livestock, or any commodity prices drop before harvest, or before you’re in a position to sell your commodity, you are going in with a high cost of production and potentially a revenue stream that’s not sufficient.

“Look at your marketing opportunities, work with marketing coaches to try and figure out how to manage some of that risk. And then, make sure you’re taking advance of all of the insurance programs that are out there, to backstop you for anything you weren’t able to fully protect yourself on with a marketing strategy.”

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