Farmers have well earned the right to be independent thinkers, stubborn, and set in their ways. They are the ones out there battling the weather, uncertain commodity prices, high input costs, government regulations, and fluctuating interest rates. They face these battles alone with their families. It is increasingly imperative to rely on help today to survive in the volatile world of agriculture. Here are just a few trusted advisors and the resources they can provide producers to lessen the risk and uncertainty.
(1) Lender – Always keep an open line of communication with your banker. There is a wealth of new creative financing opportunities to help structure cash flow that were simply not available even ten years ago. In many ways, your lender is your business partner. Your success is mutually beneficial to you and your lender.
(2) Attorney –Your attorney can guide you in the most beneficial structure for your farm. Depending upon your circumstances, it could be a sole proprietorship, partnership, or LLC. It might be beneficial to structure your farm in a trust to develop a succession plan to minimize inheritance taxes and family conflicts. An estate plan established by legal counsel is the best insurance for the farm to remain in the family if that is the ultimate objective.
(3) CPA –The days of shoe box record keeping are gone. Farmers need tax planning guidance from tax professionals. Bankers are also more insistent on seeing accurate reflections of farm profitability as they access loan requests and will require more in-depth and frequent financials than just those provided by a tax return. CPAs can help farmers set up accrual methods of accounting that provide a more accurate portrayal of the true profitability and sustainability of the farm enterprise. CPAs can help farmers establish quarterly or monthly balance sheets and profit and loss statements so there are no surprises at tax time or when a farmer is requesting a loan. A tax professional can provide guidance on capital purchases to determine the impact of these purchases more accurately.
(4) Insurance Agent – Farmers notoriously are lacking in life insurance. Again, this can be traced back to the bulletproof mentality of farmers. But farmers need to ask themselves where the farm and their families would be if something happened to them tomorrow. Farmers also are often lacking in adequate property and liability coverage. Find a trusted insurance advisor who knows agriculture. It is a mistake to purchase your insurance simply based on the premium; you must determine if you have the overall insurance protection that you need.
(5) Risk Protection Advisors – Products are available today, often with government subsidies, that allow farmers to price protect their livestock and their crops from drought. This is in addition to the traditional crop insurance products that have been around for years. Particularly in times of record-high livestock prices, farmers can lock in prices to hedge against a drop in price. These programs are available through most insurance agencies that deal in agriculture.
(6) Extension Agents and University Programs – There are a wealth of programs available, at an exceptionally low cost, to assist farmers in more efficiently operating their farm operation as well as introducing new alternative production methods. Often, the networking opportunities at these extension programs just multiply the value of the presented information. Plant and animal nutrition experts provide valuable information to maximize crop and livestock yields.
(7) Financial Advisors – Farmers often lack plans for their own future. I am amazed at the number of farmers that I deal with who have not taken advantage of the tax savings and investment opportunities available to them through Individual Retirement Accounts, Health Savings Accounts, and various other investment opportunities that make just as much sense for a farmer as people in another line of work. Seek the professional help of a financial advisor to develop a financial plan.
Today, it takes a team to be profitable and sustainable in agriculture. The good news is that there is a wealth of resources. I have just touched on a few of these resources, but they will provide critical input to sustain the farm lifestyle we all desire and to be carried forward to the next generations.
Kim Light is the president and senior credit officer at Heritage Bank of the Ozarks.
