Managing the finances of the farm is one of the most difficult things you’ll ever do.
That’s because you need a good understanding of loans, capital, taxes, etc.
Additionally, you also must have a good relationship with the banker and the accountant.
You must learn how to manage your farm finances as it is the most important thing for running a successful farm business.
Here are various tips for you that will help you to manage your farm finances better:
1. Take everything into consideration
The revenue of the farmer depends on the weather as there can be crop failure sometimes due to climate change.
Hence, the revenue of the farmers is uncertain.
So, it is very necessary to keep your budget tighten up and manage your finance.
Try to save every single penny from your expenses.
Although this may seem a time waste, if you do this it will surely give you benefits.
You must try to reduce the operating cost as much as you can like machinery purchases, living expenses, etc.
Reduction in expenses will help you save money and will help you in your bad times.
The best way to cut and reduce your expenses is to make a list of all the expenses and see which expenses are urgent, which expenses can be postponed, where you can reduce the expenses and on which heads you are spending more than needed.
2. Try to make your financial statement
Making and writing the financial statements by yourself will help you to understand your financial situation in a better way and it will also tell you how to spend your hard-earned money.
If you do not know how to manage the finances then, you can not become successful in your business.
So, the first thing that you must do is try to learn and make your financial statements on your own.
However, if you have zero knowledge about financial statements, then, you may hire an accountant for your business who will help you to maintain the records properly and will help you in financing your business efficiently.
You can take an accounting system for your business for a better recording of financial transactions.
3. Maintain a good working capital
Agriculture is an unpredictable industry as no one can predict climate change.
There can be natural calamities anytime. So, it is always a great idea to keep a good amount of working capital aside.
But working capital does not only mean to keep a certain portion of money aside.
The quality of working capital is also an important factor.
You must spend some time in deciding the quality of the working capital.
You can keep the working capital in the form of cash or inventory.
You must calculate the value of your inventory and at what price you will sell it.
Do you want to clear the inventory or store it for a long time?
However, holding the inventory for a long time is not a good idea as it is associated with various market risks.
As you cannot know how the market will respond, so maintaining a good amount of working capital provides you with support against price fluctuations.
4. Don’t depend on your land
If you are dependent on your land for payment of all your bills then you are doomed.
This is because in the past few years the prices of land have decreased a lot and it is expected to decrease more in the future.
So, your land will not be able to pay all your bills at the time of crisis.
So you must focus on keeping and generating cash as your savings rather than land.
Your bank will prefer loan payback using cash and not assets.
Farm estate planning is necessary, but keeping more cash as your savings is a better idea.
5. Don’t panic
Recently, a great downturn can be seen in the farming industry.
Farmers are finding it hard to convince the landlords or moneylenders for money.
If you are having a family farming business then, you will fear to take any decision and will hire a professional to take your business decisions.
You will have a fear that one bad decision could risk your business.
But at such times, don’t fear about wrong or right decisions, just take decisions.
You must not fear to take the necessary decision.
Keeping yourself organized at times of panic is all you need to run a good farm business.
6. Analyze your farm’s performance and financial position
While analyzing your farm’s position you must ask certain questions that whether your investments are giving you enough returns?
Are you generating enough revenue?
Are your non-farming assets giving you enough return?
You must analyze your farm’s financial position and performance and see whether you need to change your strategy.
If you are not getting enough returns from your investments, then you must change your strategy otherwise it may result in losses.
It is a good idea to sell your non-performing assets.
7. Debt management
If the debt is not managed and planned properly then it may result in various problems for you.
You must consider whether your farm business will be able to earn enough money in a certain time frame to repay the debt or not.
Try to take short term loans as long term debt is very bad especially when there are high-interest rates.
Before taking a debt you must ensure that how much interest you have to pay and what will be the cost of borrowing.
Don’t take any decision promptly.
Take your time to analyze all the aspects and then make your decision.
8. You should have a proper business plan
The business plan must include the following:
- What is the main objective of your business? What is the short and long term objective and what will be the time required to complete them? Deciding all this will help you to know where you should focus and where all your efforts and finances should be directed.
- You must clearly define the roles and responsibilities associated with each person involved in the business. Also, the person to whom responsibility has been allocated must know what they have to do.
- You must define what will be your operating plan. How you are going to carry out your work and how all the functions have to be performed?
- You must predict what will be the requirements of the finance and how to allocate them? You must also predict how your farm will perform this year and what will be the estimated earnings.
- You must also decide on your expenses. You must try to reduce the expenses by utilizing the resources properly and not wasting them.
Planning all this will help you to finance your farm effectively.
9. Reduce cost
Try to reduce your cost and increase revenue.
Analyze all your expenses including business and personal expenses.
Find out where you are spending more than required.
You can reduce your expenditure by taking certain equipment required for seasonal crops at a rent and not purchasing them.
10. Increase revenue
Saving your extra expenditure will reduce the cost of production and increase your revenue.
Avoid taking unnecessary debt to purchase personal vehicles.
Revenue can be increased if you will solve your problems creatively.
11. Cash is king
Before purchasing any equipment or taking any decision always find out whether it will generate cash for you or not.
You will be requiring cash at every phase of your business, whether it is about to repay the debt or anything else.
Before purchasing anything always analyze that what will be the impact of the purchase and how much cash will be generated.
If your new capital purchase will not create enough cash inflow that means that it will not support you financially in the future.
So, you must generate enough cash flows in your business.
12. Tax provisions
In your farm business, it is very necessary to take care of your tax payments.
If you are not aware of all the tax rules and regulations then, you can hire a professional who can handle all your tax issues.
The right expert will ensure to provide you with all the benefits and will comply with all the provisions of taxes.
Most people make various mistakes and it is very essential to take care of such mistakes.
You must know where you are and what your current and estimated income is.
13. Always keep a financial budget
If you will not have any proper budget, then, you will not be stable financially.
Your budget will provide you with a path that will guide you in your business.
Always make your budget, keeping in mind the past experiences.
Decide your budget, according to the objectives of your business.
You must consider all the expenses like machinery, rent, stock, fuel, fertilizers, etc.
Once you have decided on your budget, you must continuously review and modify your budget.
As market trends change continuously so, it is very important to modify your budget accordingly.
The agriculture industry is affected by many factors like climate change, demand, price fluctuations, etc.
If you are involved in such a business then, you must analyze each decision you take.
It is very essential to take all the financial decisions very carefully and involve all the family members in taking those decisions.
And if you don’t have proper knowledge about making decisions about your business, you can hire a professional advisor.
He will help you to make decisions which will help you to increase your profits and make your business successful.