It doesn’t take long for farmers to slip into financial difficulty. Management decisions in the 1980s and 1990s contributed to financial hardship, but the problems were compounded by outside factors, including low commodity prices, high interest rates and weather.
This year, a many farmers are experiencing financial difficulty, largely because of adverse weather. Learning how to manage during these times helps make financial problems as short-lived as possible.
The financial challenges were so severe in the 1980s that many farmers had little or no equity.
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Today however, most farmers with financial stress also have equity, giving them more options.
I have worked with many farmers in differing degrees of financial difficulty.
My job was to assess their situation and work with lenders to find a mutually acceptable solution.
Some had such little equity, or none at all, that they had no options, except
to leave farming. After reflecting on their situation, farmers would often say, “if we had only known.”
Lesson No. 1: Know your situation
Don’t wait for a regular review with your accountant after the year-end. If you’ve had a bad crop, immediately review your financial position and determine what options are available to work through problem areas.
Financial problems do not fix themselves and hoping that things will work out is not a good strategy.
Looking back at the problems of the 1980s and 1990s, it wasn’t one year or one bad event that resulted in the financial challenges. Rather, it was year-over-year deterioration until there were no options to continue.
Lesson No. 2: Deal with it now
It doesn’t matter how severe the problem. There is a degree of “first mover advantage” when it comes to managing financial challenges.
Lenders and creditors are significantly easier to deal with if you are proactive and start early.
Working through financial challenges takes time. It is much better to start working on a solution in November than March.
I’ve watched farmers in only moderate financial stress who have been unable to make arrangements with lenders because they waited too long to address the problem.
If it gets too late in the winter and lenders feel pressured, they’ll often say, “get the crop in and we’ll take a look at it in the fall.”
However, getting the crop in can be a problem when money is tight or nonexistent.
Lesson No. 3: Separate emotion from business decisions
This is often difficult to do but extremely important, especially as the financial picture worsens.
Think of the equity in your farm as money – the money you have invested in the farm.
You are further placing your equity at risk by restructuring debt or by encumbering assets to secure a working capital loan or by increasing trade credit. Your equity will erode if things don’t go well.
I’ve watched farmers make poor and risky management decisions when they feel like their backs are against the wall. They are basing their decisions largely on gut feel and/or emotion.
If things get tough, consider talking to an unbiased third party, such as a management consultant or an accountant.
Lenders can also be a good option, but remember that it becomes increasingly difficult for them to remain unbiased as the financial situation deteriorates.
Take control of the situation. Don’t wait until your equity has eroded and you’ve run out of options.
Terry Betker is a farm management consultant based in Winnipeg, Manitoba. He can be reached at 204.782.8200 or
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