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7 Tips for Better Farm Financial Management

Tips for better farm financial management.

Last year the pandemic reminded the nation that financial preparedness benefits us when we least expect it. While it’s too late to prepare for COVID, it’s not too late to work on the financial security of your business. Keeping your farm finances in order can provide security for the future of your family and your Missouri farm business. At BTC Bank, we care about our community members and want to promote your financial success. We’ve compiled the following seven tips for double checking your farm finances.

Check Your Spending

For ag businesses in Missouri and Iowa, cash purchases are usually the best financial option. Yet when the time comes to expand or update your business, cash isn’t always available to cover your expenses and agricultural lending is needed. Keep your business strong by examining every purchase before you make it. Ask yourself if the purchase will generate income for your business. If not, why do you need it? Think about your immediate, short-term, and long-term needs for capital. Try to avoid jeopardizing your long-term needs by spending too much right now. By keeping an eye on the big picture of debt and cash flow, you are unlikely to spend money that won’t benefit your business.

Open a Business Checking Account

Keeping business finances separate from personal finances can be tricky when you run a family farm. A business checking account can help simplify your accounting and farm management. By collecting receipts in your business account and writing checks for expenses, you won’t muddle your home and ranch finances. Having a business checking account also allows business partners or trusted employees to access the account in order to pay bills or collect payments.

Be Meticulous with Your Bookkeeping

Don’t wait until December to pull out your receipts and document the year’s income and expenses. Tracking your numbers throughout the year will help you make timely, informed decisions. By tracking your expenses as they occur, you're able to better analyze trends in prices and monitor your profitability. Meticulous booking will help you catch increasing expenses or diminishing profits faster so that you can take corrective action.

Analyze Your Financial Statements

Understanding your financial statements is an important aspect of business ownership, but it’s unlikely that you started your farm or ranch because you love analyzing financial statements. Income statements, cash flow projections, and balance sheets provide keen insight into the health of your business.

  • Balance Sheet - a summary of your business’s assets and liability at the current point in time.
  • Cash Flow Statement - a projection of your income and expenses for a future time period.
  • Income Statement - a statement of your profitability over the year, calculated on an accrual-adjusted basis.

When you analyze your statements annually, year to year trends can be identified. This allows you to make corrections to your operations that could save your business in the long run. According to Texas A&M’s AgriLIFE Extension System, “These financial statements allow a producer to systematically analyze financial progress, plan operations for the year ahead, and demonstrate creditworthiness to lenders. To be most useful, these statements should be compared over several years.

Create Your Farm’s Succession Plan

What happens to your farm’s finances if you get sick or decide to retire? Creating and maintaining a business succession plan ensures that all of your hard work won’t get disrupted if you step away from the books. Our Missouri Farm and Ranch Succession Planning Guide shows you how to create economic security, family harmony, and continued viability for your farm with a succession plan.

Commit to Debt Management

There are many ways to finance the land and equipment you require to run your farm or ranch. Take some time to examine your current debts and be sure that you have the best options in agriculture finance. Long-term assets, like your land or home, are best afforded by taking out long-term debt that is repaid over the course of years. Machinery and livestock are best paid for with cash, a lease, or short-term debt. Some examples of short-term agricultural financing include livestock lending, farm operating loans, and farm equipment financing.

  • Livestock lending is a type of specialized financing the BTC Banks offers its Missouri and Iowa customers to help cover the upfront cost of purchasing new livestock.
  • Farm operating loans help business owners cover the cost of items like seed, fertilizer, labor, and feed until the profits from these investments are realized.
  • Farm equipment financing provides the funds that farmers and ranchers need to upgrade or expand their vehicles, tools, and farm systems.

Update Your Insurance Policies

Securing insurance for your farm assets can be expensive. Take time each year to review the insurance coverages you pay for and what specifically they cover. Your needs and assets will change over time so your insurance policies should change with you. If you are looking to save money on insurance, try raising your deductibles. You will pay more if you need to file a claim, but you will save money on your recurring payments. You can also consider eliminating your coverage on low-risk business items. If something does happen to a low-risk item, you may be better off paying for it yourself rather than carrying insurance on it for years.

Achieve Financial Security

Owning a farm business is a tough job. The last thing we want to see happen is for financial complications to ruin your hard work. At BTC Bank, we believe that thoughtful planning for the future can help ensure the continued success of your family farm.

Don’t wait!

Start creating your farm or ranch succession plan with the help of BTC Bank’s Trust Department.

If it’s time to expand your operations or upgrade your equipment to increase productivity, BTC Bank offers a variety of agriculture and farm loans for equipment, real estate, operating costs, and livestock. Ag lending in Missouri has never been easier with BTC Bank. Talk to an Ag Lender today or stop by one of our 12 Missouri locations in Bethany, Gallatin, Albany, Pattonsburg, Chillicothe, Carrollton, Boonville, Beaman, Trenton, Maysville, Osborn, and Buffalo, or our Lamoni, Iowa branch.