Another football season is winding down, and the Big Game is just ahead. The coaches and players preparing for Sunday’s match know that a sound offense is critical, but a strong defensive strategy is equally important. And just like in football, a strong defensive playbook is vital for farmers who want to create a strong financial game plan for their operation this season and in the years ahead.
Steve Witges, a Senior Vice President of Agricultural Lending at Farm Credit Mid-America, encourages farmers to think about the critical elements of their balance sheet as though they are a football team’s defensive playbook.
This Farm Finance Playbook begins with an operation’s defensive line: its profits. “A farmer’s net farm income, or profit, is arguably one of the most important measures of his or her business,” Steve explains.
But profits are just one element of a strong overall defensive strategy and aren’t the only thing farmers should focus on. An operation also needs strong linebackers, or working capital. This is the measure of a farm’s liquidity and its risk-bearing capacity.
“When we face times where profits are squeezed and we have a cash flow shortage, we can find ourselves in a situation where we have to rely on working capital to meet the needs of the operation,” he explains. “A lender is going to want to see what kind of working capital the operation has to still meet obligations during more difficult times when profitability isn’t as strong.”
Finally, the last level of defense are defensive backs, or the farm’s net worth. Net worth provides an overview of a farm’s total assets minus total liabilities. If a farmer’s earnings are weak, and their working capital has been depleted, net worth is its final line of defense.
“In football, the defense is defending its end zone to keep the other team from scoring,” says Steve. “In the Farm Finance Playbook, your defense is protecting your financial well-being from the volatility our industry faces whether it’s inflation, tighter profit margins, higher interest rates, political issues, etc.”
Ready to create your own Farm Finance Playbook for your operation? Farm Credit Mid-America can help you look at your overall financial position and financial well-being on or off the field. Contact us today.
To read more about Steve’s Farm Finance Playbook in Brownfield Ag News, click here.