Financial resiliency: a way to face performance challenges

Gavin Betker and I gave a webinar recently on financial resiliency. It was called Farm Financials to Help You Sleep at Night. It was the first of a two-part webinar series.

Thanks to the Alberta Wheat Commission and Farm Management Canada for making the webinars possible. The presentations will both be in the Farm Management Canada webinar archives, once completed. Gavin teaches at the University of Manitoba’s School of Agriculture Diploma program and consults to farm families.

To no one’s surprise, there are events that can affect farm financial performance. Some can be of a magnitude that potentially threatens the future of any given farm. Often, there is associated uncertainty that can contribute to stress and anxiety. Not knowing, or fully understanding, where things are at financially can compound the stress. The actual financial resilience of a farm can have the benefit of reducing stress caused by the uncertainty.

Financial resiliency

Resiliency itself can be defined as:

  • The capacity to recover quickly from difficulties.
  • Knowing how to cope despite setbacks or limited resources.
  • Having to do with someone’s emotional strength.

The situation of having to manage financial challenges at times is nothing new to farm families. Many would say “been there, done that.” The concept of financial resiliency is just another way of understanding and working through financial performance challenges.

Financial challenges arising from outside, and within, a farmer’s control can be quite varied. Typically, the first challenges felt are with inadequate cash flow. It’s completely possible to have a farm that has several million dollars in equity but still be experiencing excruciating financial stress due to insufficient or poorly timed cash flow.

When confronted with financial challenges, it helps to work to separate business and emotion. One of the ways to do this is through information. Knowledge is the single most important asset to have when experiencing financial stress.

There are two aspects of financial resiliency:

  • What the farm’s actual resiliency is at present.
  • What can be done to improve it over time.

Clearly, a farm’s financial resiliency at any given point in time is a function of the balance sheet at that time. A balance sheet is a function of past management decisions and events that have affected the business over time. It reveals the financial strengths and weaknesses of a farm business, which in turn are directly correlated to financial resiliency.

Mike Richardson says that “if you don’t like your cash flow in the present, look at your conversations in the past. If you want a certain cash flow in the future, focus on your conversations in the present.”

Strong cash flow comes from sustained profit. The “conversations” Richardson refers to are the management decisions that are and will be made. Again, they are directly correlated to financial resiliency.

So, what if the following scenarios come into play?

  • The current low margin environment continues for an extended period of time.
  • Trade-related market access continues to be an issue.
  • Adverse weather events happen with increasing frequency.

Questions follow. How financially resilient are you and what can you do if any of the “what-if’s” were to happen? Before you can do anything about your financial resiliency, you need to know your financial strengths and weaknesses. The saying is that you can’t manage what you can’t measure. Measuring is a form of knowledge. And as mentioned above, knowledge about your situation is vital.

I think the goal is to be as financially resilient as is reasonably possible. Obviously, a farm with no debt is more financially resilient than a farm that is carrying a lot of debt.

The challenge here is that capital investment and growth in a farm is almost always accompanied by debt. There is an element of fortune involved when it comes to understanding resiliency on a farm. There will be a great many situations where the timing of a decision worked to improve resiliency and other situations where it didn’t.

Case in point. I can recall having spoken to farms that either sold their breeding cows, or had just bought and expanded their herd, before BSE hit.

Financial metrics

Of the myriad of financial ratios that can be used to analyze financial performance, the following ratios are best suited to understanding a farm’s financial resiliency at any point in time:

  • Liquidity, which is applicable because it correlates with cash flow and short-term risk
  • Farmers should look at their working capital and working capital percentage
  • Solvency is applicable because it correlates with overall debt and long-term risk
  • Farmers should look at their debt-to-equity and debt-servicing capability.

As difficult as it may be, if there is evidence of financial challenges, find someone to talk to and come up with a plan. It’s really important to talk within the family about the problems. If the family discussion is too difficult, get someone such as an accountant, consultant or counsellor to help.

Another good step is to visit your lender sooner rather than later.

Terry Betker, PAg, is a farm management consultant based in Winnipeg. He can be reached at 204-782-8200 or

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