10 Ways Farmers Can Strengthen Their Financial Resilience. Relatable Finance Advice.

Financial Advice for Farmers to Be Resilient

Farming is a challenging profession. When faced with low commodity prices, high input costs, drought, the impacts of hurricanes and tropical storms, and competition with development for farmland it can feel like survival is the goal. However, with strategic planning and sound financial management, farmers can navigate these challenges and emerge stronger. 

A farm striving to adapt to change and position themselves for resiliency is Southern Belle Farms in McDonough, Georgia. Jake Carter came home to the family dairy farm after college to one of the fastest growing counties in the state. His determination to continue farming as the 5th generation meant that he and his dad needed to make some decisions about the farm’s future. Jake shares, “We knew that if we were going to do this [farm] we had to find something that would work.” Their willingness to adapt has helped them not only survive, but thrive in their market. 

Here are some key pieces of financial advice for farmers to be financially resilient:

1. Assess and manage cash flow

Understanding your cash flow is crucial. “Reviewing cash flow from different streams each year helps us know also where to re-invest,” says Jake. Tracking income and expenses to identify areas to help you know where to cut costs or improve efficiency. Analyzing income and expenses at least annually by commodity, farm, or field can help you understand where you are profitable and where money is being lost. Spread fixed costs (utilities, taxes, land payments, equipment payments, labor, etc.) across all acres to assess true operational costs, cash flow and profit. By understanding your real cost of production, you can make smarter, more informed spending decisions (1). 

2. Diversify income streams

Relying on a single source of income can be risky. Explore opportunities to diversify your farm's income. This could include adding new crops, livestock, or even agritourism activities. Diversification can provide a buffer against market fluctuations (1). It can also offer opportunity to remain in production, especially in growing areas. Jake says of his experience, “It’s important not to put all your eggs in one basket and spread-out risk to mitigate for loss. We recognized that we had a dairy farm in an urban area. We made a substantial investment to add agritourism. Then what started as a side-hustle turned into a year-round produce operation.”

3. Review and adjust budgets

Regularly review your budget to ensure it reflects current economic conditions. Be honest with yourself and your lender about real operational costs. Adjust your spending when necessary to prioritize essential expenses. Being willing to make hard decisions on spending and delay non-critical purchases can help maintain liquidity during tough times (1).

Managers that control expenses well include family living spending. These expenses can easily get away from you but are also more easily controlled. Work with your family and other farm partners to develop a plan to account for family living expenses within the farm budget.

4. Seek professional advice

Don't hesitate to seek advice from financial advisors, agricultural extension services, or farm management consultants. Gaining perspective from experienced professionals can help you make decisions now that will benefit your farm in the current production year and in the future. (2). “One thing we do on a monthly basis is meet with our accountant who has become an advisor to review our balance sheet and where we are at in the year. It is valuable to have that outsider perspective to assess and give advice,” offers Jake.

5. Optimize debt management

Evaluate your current debt situation and explore options for refinancing or restructuring loans to reduce monthly payments. Communicate proactively with your lenders to negotiate better terms if necessary (1). 

6. Invest in efficiency

Investing in technology and practices that improve efficiency can reduce costs in the long run. This might include precision farming tools, energy-efficient equipment, or sustainable farming practices (3). Avoid unnecessary equipment purchases that can eat into your cash flow and hinder your liquidity. When managing for labor, Jake shares that for them, “the best investment is the right person in the right seat on the bus.”

7. Build a contingency fund

When possible, set aside a portion of your income into a contingency fund. This fund can provide a financial cushion during unexpected downturns or emergencies (3). This habit can be hard, but putting money aside in the good times will be critical to weathering years with crop or financial loss.

For Jake, finding ways to set aside money was not a priority starting out at 22. As the farm grew, he began setting aside some reserves to help their operation be less reliant on debt. “Recognize there are going to be bumps in the road. When that happens, you want to be in a position to weather the storm.”

8. Stay informed

Keep up with market trends, government policies, and financial assistance programs. Staying informed can help you make timely decisions and take advantage of available resources (2). In can also help you anticipate how your operation needs to adapt to regulatory, policy, or market changes. Jake believes, “It’s important to know what legislation can affect you. It’s not all about what happens on the farm.”

9. Focus on mental health

Financial stress can take a toll on mental health. Ensure you and your family have access to support services and take steps to manage stress. A healthy mindset is crucial for making sound financial decisions (3). Jake shares, “When you have money you owe, it creates a burden to pay it back that can make you lay awake at night. Having a network of people in the same business to talk to is so important. Don’t be on an island.”

10. Plan for the future

Develop a long-term financial plan that includes succession planning, retirement savings, and investment strategies. Having a clear plan can provide direction and stability for your farm's future (2). Jake even suggests having a retirement fund personally that is separate from the farm. That can take the financial burden off the next generation if and when they come back. He also advises having a succession plan while everyone in the family is around to talk through it. “I’ve seen more farms split than bad crops.” While every family is different and there are no formulas for how to do it, having a plan everyone is aware of can help save the family and farm.

Strategies for every operation

While every farming operation is different, implementing these strategies can help any farmer better manage their finances and navigate the challenges of the industry. Resilience and adaptability are key to sustaining your farming operation. 

Thank you to AgSouth customer contributor Jake Carter at Southern Belle Farm in McDonough, Georgia. Southern Belle is a 5th generation family farm that is open seasonally for fresh produce, you-pick berries and peaches, fall fun, Christmas trees, and more. You can follow them on Facebook here. 

References:

1: Successful Farming 

2: American Farm Bureau Federation 

3: MSU Extension