Helpful Tips to Save Money and Time with Your Farm’s Financial Plan
The season is done, the grain is in the bin, and the cotton is at the gin. Time to slow down, work on those much-needed repairs, and start thinking about your crop plan for next year. A key question that should be at the center of every farmer’s crop plan is, how am I going to pay for it? As of 2017, 2.8% of the farmer’s total expenses were made up of interest, totaling $9.9 Billion dollars. (USDA Farm Production Expenditures 2017) This number is expected to climb exponentially in 2019 with the rapid increase of the prime rate to 5.25% up 1% from just 12 months ago. What can farmers do to mitigate this expense and make strategic financing decisions to maximize their potential income?
1. Do your homework. There are lots of attractive financing opportunities; however, not all options are created equal. Always scrutinize the cost versus the benefits. It may be beneficial to take advantage of an early John Deere Financing program. These programs have little to no financing costs and offer discounts on the cost of products.
2. Build a budget. Too often growers run out of operating funds simply because they did not budget. During this slower time of year, take time to build a realistic budget that accounts for all of your inputs. Every cost should be budgeted, no matter how small. Small expenses can quickly add up. Also, add a category for unexpected expenses such as a second round of spraying or a blown transmission. Finally, it is better to budget with costs on the high end than to budget too low and find yourself out of money in July.
3. Consider your prepay options. Not all prepay programs are the same. Some programs offer attractive discounts on products, some offer interest incentives for putting money into the program. If the program will cost less than your interest rate at the bank, you might initially pay a little more in interest, but you could end up with thousands of dollars in rebates at the end of the year.
4. Be diversified in your financing. Too often people get comfortable with one financing option. Why? Because they have always done it that way. Don’t be afraid to look at different financing options. Pinnacle Agriculture offers several financing programs for our customers. One option may be more beneficial for you than another. Research what product you are buying and make sure you have the right financing plan.
5. Don’t go past due. This may sound silly, but every month you go past due it can cost you up to 1.5% in interest. This is where having an outside financing option and prepay can pay off. You can explore your third-party financing options and apply for prepay simply by calling your local Pinnacle sales representative. Having a conversation beforehand means no lost time in the tractor to stop and write a check.
6. Know your own finances. Every year, most of us go to our accountant with a ledger for the bank to figure out our financial statements. When it’s all said and done, many of us don’t look closely at the numbers or consider how they are going to affect our interest rates. First, review the income statement. Ask yourself - are my expenses in line with my profits? Based on that, make planning decisions for the next year. Should you buy that new combine or would it make more sense to wait it out another year? The next thing every farmer should look at is the balance sheet. Look at the ratios and discuss them with your lenders. By improving one ratio over another you may end up qualifying for a lower interest rate or even increase your borrowing capacity.
Failing to plan is planning to fail. Every farmer knows they need a good plan for the season. Financial planning should be a key part of your business model. By successfully preparing for the future, you stand a better chance of financial success.
To learn more about Pinnacle’s credit offerings, contact me directly at Kevin.Stinner@pinnacleag.com.
Kevin has been in the field of credit and collections since 2007. He earned his MBA with an emphasis in Management in 2004 from AIU. He is currently a Director of the Chicago Midwest governing board and member of the Editorial committee for Business Credit magazine. His work has been published in Business Credit magazine and by the InterConnection. Kevin is currently a Credit Manager with Pinnacle Agriculture where he has worked since 2017.