Another exciting football season is underway. While the offense is usually the one making the score, a team is only as strong as its defense.
When it comes to financial planning, farmers and producers can look to the gridiron for a little inspiration. Steve Witges, Senior Vice President of Agricultural Lending at Farm Credit Mid-America, encourages farmers to think about their balance sheet like a football team’s defense, and offers a few tips from his own 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 defensive strategy. An operation also needs strong linebackers, or working capital.
“When profits are squeezed and there’s a cash flow shortage, we have to rely on working capital to meet the needs of the operation,” says Steve. “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.”
The next level of defense is 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 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.”
The last member of your defensive team is the safety position. In agriculture, this is insurance on your crops or livestock. An important, but often overlooked, strategy in the Farm Finance Playbook, insurance helps farmers and producers protect their operations against the unforeseen loss of crops or revenue.
“When you assess risk, you can reduce the impact of your bottom line,” said Ali Long, Director, Crop Insurance Operations for Farm Credit Mid-America. “Crop insurance can protect your operation from loss due to natural disasters or declines in the prices of agricultural commodities.”
Do you have a Farm Finance Playbook for your operation? Farm Credit Mid-America can help you look at your overall position and financial well-being on or off the field. Find your local office and start strategizing today.