Q: How can I protect my farm business from financial risks?
A. Farming is a risky business, but there are a few things you can do to protect your operation.
Start with a business plan. A good business plan includes plans to market grain well ahead of actual grain movement to mitigate price risk and plan for management of cash flow throughout the year based on timing of inventory sales and payment due dates. Incorporate the purchase of crop insurance and take advantage of programs such as cash advances and AgriStability. Having cash flow is key. It’s important to have a rainy-day fund or inventory for years when various elements impact yields and/or quality. Plan for the worst and revisit the plan throughout the year to adjust if needed.
Understand the size of your operation and the threshold of financing that can be supported. Too big, too fast impacts many operations, particularly when there are poor years. Ensure the size of your operation justifies the amount and size of equipment. Build equity year over year, don’t overfinance. Live within the means of your operation.
Finally, seek professional advice. Know your strengths and use professionals who are experts in their fields to enhance your business’s success. Have a good accountant and lawyer provide advice on a suitable business structure, tax planning and succession planning for your operation. Work closely and communicate openly with your primary financial institution to obtain best rates and financing options. Be open to refinancing options with your primary financial institution or other agricultural financing providers in lean years. Understand the financing options available from your inputs providers to obtain the best available rates and work to pay accounts on time or early where there is financial incentive to do so
Tracy Snell is a credit analyst with Nutrien Ag Solutions in Regina, Sask.