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Four Common Long-Term Financial Planning Pitfalls

These pitfalls can derail the development of a financial plan; here’s how to avoid them.

Man in front of cotton field.
// Business Insights

Long-term business plans are meant to balance out the impact of unforeseen circumstances, like weather, markets and health. It’s easy when less-than-ideal situations happen to over-correct and make quick, rash decisions. This often means that many farmers are simply reacting to short-term demands instead of proactively planning for the future. Having a long-term plan forces producers to keep their eye on the prize: A growing and thriving operation.

However, while long-term planning helps to avoid the above mistakes, it doesn’t come without its own potential pitfalls. Four typical shortfalls can derail development of a long-term financial plan. Here’s how to identify and avoid them.

Prepare to adapt. 

Don’t assume that what worked last year will work again this year. Every business cycle is different, so build flexibility into your long-term plan. Be prepared to make short-term adjustments to maximize profits without losing sight of your goals.

Regularly evaluate partnerships. 

You can’t completely control variable costs, such as fuel and fertilizer, but you can evaluate your options and programs to see how you can maximize production while focusing on managing expenses. Review third-party risks, services and costs each year and make sure each investment is helping you achieve your goals efficiently.

Avoid emotion-driven decisions

Your long-term goals should put profitability, financial depth, risk management and succession planning at the forefront. When making a decision, such as buying land, be sure it is driven by long-term financial strategy, not by emotion.

Evaluate and reassess your plan. 

One of the biggest pitfalls in long-term financial planning is not regularly reassessing your plan. Markets change and your operation will evolve. While your financial plan should be focused on the long-term, it should be evaluated and updated regularly. Review your long-term plan annually or when material changes take place in the operation, and take the opportunity to sit down quarterly to ensure that your short term goals are working in alignment to help you achieve long term success. Be sure to include operation stakeholders and your financial team in these conversations.

Long-term planning is vital to setting your operation up for success and for off-setting any unforeseen circumstances. By avoiding the above long-term planning pitfalls, producers can better prepare themselves for whatever the future brings.

* Loans and leases are subject to credit approval. Additional terms and conditions may apply. Farm Credit Mid-America is an equal opportunity lender.

‡ Farm Credit Mid-America is an equal opportunity provider.

Farm Credit Mid-America territory includes Arkansas, Indiana, Kentucky, Missouri, Ohio and Tennessee. Arkansas includes Clay, Craighead, Crittenden, Cross, Desha (northeast of the White River), Greene, Lee, Mississippi, Phillips, Poinsett, and St. Francis counties. Missouri includes Carter, Ripley and Wayne counties. Kentucky excludes Ballard, Calloway, Carlisle, Fulton, Graves, Hickman, Marshall and McCracken counties. Ohio excludes Crawford, Hancock, Lucas, Marion, Ottawa, Sandusky, Seneca, Wood and Wyandot counties. We serve all counties in Indiana and Tennessee. 

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