5 Tips for Managing Your Farm Finances

Farming is one of the most prominent sources of income for any country. In the US alone, farm finance amounts to almost $105 billion every year. This number has been constantly increasing since 2011. So how can you manage your farm finances?

In this article, we would share with the five tips that can help you improve your finances. These farm business tips have been tested by our expert and they are bound to give a valuable result. So without wasting much time, let’s get started.

Count Every Little Thing

The revenue of a farmer is very unpredictable. It is subject to climate change, the marketplace, yield, etc. This makes it very important to tighten your budget.

Every dollar that you can save on your expenses will show a profit on your final income statement.

While we do agree that calculating every single penny is a time-consuming task, but one who does so is surely going to reap the benefits. We cannot stretch much on how important it is to manage your expenses.

Living expenses, machinery purchases, equipment, spending habits are some of the areas where you can observe your investment. Cut back as much operating cost as possible. This will help you in your tough times.

Make a list of all your expenses, find out where you are spending more. Try to cut back on those expenses from the next time.

Push Your Pencil

Learn to read and write financial statements. It would help you to understand your spending better. If you do not have an enterprise accounting system, you should get one. This is money well spent.

You cannot succeed in any business if you do not know how to manage your finances. Take your pencil and start maintaining your financial records.

You can also spend some money and hire an accountant to help. They will have proper knowledge of every type of financial statement and can help you manage your finances effectively.

Establish Good Working Capital

Agriculture is a distressed industry. No one can predict the weather and other natural calamities that can affect the farming industry. So it is always beneficial to keep aside a good amount of working capital.

Moreover, it is not only about the working capital but also about its quality. Cash is more preferred as compared to receivables. And receivables are more preferred than inventory. So you should also spend time to decide on the quality of your working capital.

You should know what is the worth of your inventory? How will you market it? At what price? In case you are planning to hold it for the long term, you should also consider the carrying cost.

Remember holding your inventory for the long term is subject to market risk. You cannot predict how the market will react to your produce.

A good quality working capital provides you the first line of support against price volatility.

You Cannot Pay Your Bills with Land Equity

Your land equity cannot pay your bills, and that is a fact. Land prices have already come down for the past few years. In the case of the rise of interest rates, land values will decline more rapidly.

If you are relying on your land equity for your savings, then this is a very bad idea. Instead, you should focus on generating more cash and reducing your debt.

Banks want to get paid back in cash and not your real estate.

Do not be dependent on land. Period.

Do not Get Paralyzed

We are already seeing a downturn in some sectors of farming. Many farmers are already finding it difficult to convince their lenders for the money.

If you are running a family business, then this is the most emotional business in the world. Many times, you will try to hire a specialist to make decisions for your business.

You will be fearful and will not want to ruin the business with one bad decision. But at such distressing times, it is more about making decisions than making right or wrong decisions.

One rule of thumb is – the persons who are struggling the most are the ones who are most paralyzed.

The Bottom Line

Agriculture is a very sensitive industry. It is influenced by so many factors – climate change, weather conditions, market demand, soil fertility, fuel prices, etc.

When you are operating in this type of environment, it is important to understand the impact of every decision. Do not make any decision in the vacuum. It is best to involve all family members in financial matters.

If you are unsure about something, it is always good to hire a trusted advisor. He will help you in your decision-making process.

Ultimately, you will have to make the decisions on your hand, but it is always helpful if you have someone as your guide.

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About FinanceGAB

Ajeet Sharma is a financial blogger and I am blogging since 2017. Financegab is a personal blog dedicated to personal finance. The main aim of this blog to help people to make well-informed financial decisions.
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