Financial planning tips to help farmers keep food on tables around the world.
Farming families work hard to put food on tables around the world and at home.
As a “small-town boy” who has spent my whole life on farms, and as a banker who has signed off on hundreds of millions of dollars in loans to farmers, I’ve discovered three simple practices that make all the difference when it comes to a farm’s financial success.
First, all farm operators should have a risk management plan. Aside from anticipating weather risks and pests, ask yourself what happens if you lose your key employee? What if you get sick? What if there’s a hunting accident on your land? Incorporating a risk management strategy into your business plan will help you manage these “What if” scenarios and capitalize on opportunities to avoid them.
Second, the best operators have a cash reserve strategy. A contingency fund allows producers to think clearly in emergency situations, remain solvent in lean years and avoid trying to solve problems at the last minute.
Third, meet regularly with your banker and tax advisor to develop a financial plan to help you better manage your capital assets, whether you’ve acquired them by purchase, lease or custom hire. Land and equipment often constitute a large percentage of a farmer’s net worth, and monitoring how efficiently you are using these resources can help you optimize cash flow and see returns on your equity.
It’s important to remember that a good financial plan allows you to fund your retirement. With proper attention, you can create a retirement plan for yourself and retirement benefits for your employees that aren’t dependent on the farm. This is accomplished by making consistent contributions to a plan over a 25- to 50-year career.
A final benefit to a strong financial plan involves succession and legacy. Implementing the above simple practices can help you pass family land and a thriving farm to the next generation.
I’m not only a banker, I’m a farmer. I’m personally and professionally invested in agriculture, and I believe in its power to remain vital to America’s economy and sustain our country’s place in the world economy. My hope is that these three practices I’ve shared today will help equip the hard-working farmers of our region to experience the reward of financial success.
Freddie Black of Lake Village, Ark., is Simmons Bank’s regional chairman for Arkansas and Southwest Missouri.
