The Rural Voice, 1981-12, Page 9farmers carry a large operating loan and
they know how to minimize their interest
payments. They apply all commodity
cheques immediately against their operat-
ing loan in order to keep the balance owing
as low as possible. One farmer said that he
used to sign promissory notes at the bank
for $2000. each. If he was overdrawn by
S400., the bank pulled a S2000. note and
put it in his account. He was then paying
interest on an additional S1600. when he
only needed S400. He now signs notes for
only S500. and if he is overdrawn by more
than that, the bank just pulls as many
notes as it needs to cover the deficit.
These successful farmers keep excell-
ent records and in many cases they employ
a bookkeeper who comes in regularly to
keep the books up-to-date. They know
each month if they are making money and
they know which part of their operation is
losing money. In addition, they use a
professional accountant as a part of their
management team and they seldom make
any large moves without his advice. As
one farmer said: "The accountant is not in
the business of lending money so he oan
TIPS FOR HARD TIMES
HERE ARE A NUMBER OF SURVIVAL IDEAS ... put together
from a number of sources including farmers, bankers,
management specialists, and others. Today's economic environ-
ment puts pressure on the farm cash flow. Some of these ideas on
coping may apply to your operation:
(1) LIST ALL ASSETS ON THE FARM WHICH AREN'T
NORMALLY USED. Examples: tools for a special machine you no
longer own; the small standby machine that's just been sitting. If
it's not earning it's keep, consider selling it.
(2) INCLUDE LAND IN THE ABOVE LIST. Many farmers have
a parcel of land that is a heavy drain on the enterprise. What if
times get worse? Will first out ... be best off?
(3) DON'T HOLD INVENTORY ANY LONGER THAN
NECESSARY. Pencil out costs of storing grain versus gains that
could be made by selling. Watch futures markets to see what
returns are anticipated by storing, i.e. what premiums faraway
months offer.
(4) START A PROFIT AND LOSS RECORD ON EACH
SECTOR OF THE FARM OPERATION AND SHUT DOWN THE
UNPROFITABLE PART. Some beef feedlot operators for example
find they can make the payments on an empty barn and lose less
money than keeping the barn full of cattle.
(5) IF PART OF THE OPERATION HAS TO BE SHUT DOWN,
CONSIDER THE TAX SITUATION. Many beef feedlot operators
say they would shut down but for tax problems. There is more than
one way to solve some of these tax problems that interfere with
good management.
(6) LOOK AT SIDELINES SUCH AS SELLING SEED,
DRIVING TRUCK. You may be surprised at potential income of
off farm work after looking at various employment opportunities.
(7) STUDY AND USE MARKETING TOOLS SUCH AS
FORWARD CONTRACTING, HEDGING. But don't become a
speculator. Consider use of a marketing consultant or advisory
service with a solid reputation.
(8) WHEN RENTING REDUCE RISK BY RENTING LAND
BASED ON MARKETS AND YIELDS. Draw up a contract that
ties your rent cost to your yields, and market price.
(9) REDUCE RISK FURTHER BY LOCKING IN FEED COSTS,
LOCKING IN INTEREST RATES TO A FIXED RATE YOU CAN
AFFORD. These moves may limit windfall gains but at least will
ensure that cash flow commitment can be met.
(10) GET GOOD ADVICE: CONSIDER GETTING CON-
SULTING from your Provincial Ministry of Agriculture extension
specialists and agricultural representatives. Usually their
services are free. Also, utilize services of your bank's agricultural
consultants. Their advice doesn't have to be followed exactly but
there may be some ideas which could be extremely valuable.
(11) CONSIDER CROP INSURANCE, especially if a crop
failure could kill you.
(12) LIMIT BUYING OF NEW ASSETS unless they will help
the cash flow. These days, inflationary increases of many product
costs is less than the borrowing interest rate. More debt could
cripple cash flow.
(13) CONSIDER TAX BRACKET WHEN BUYING. A farmer
who is not taxable probably should buy no new assets at all. But a
farmer in an high tax bracket may be wise to buy a new tractor or
other asset. If the expense lowers his tax, he is really paying much
less for that new machine.
(14) BASE FERTILIZER USE ON SOIL TESTS. Don't follow
the advice of the fertilizer dealer. Sometimes people who get best
returns don't get best yields. Sometimes they may be applying
more fertilizer and tillage than the increased yields can justify.
Some farmers tell us that after certain amounts, fertilizer applied
to a crop offers diminishing returns. Aiming for average yields
with less cost may pay better. (depending on land capability of
course) than aiming for top yields. It's "net" income that counts.
(15) TAKE TIME TO USE TIME MANAGEMENT. Go away,
sit back and look from a distance at the operation. Write down
priorities on the farm (indeed priorities in life). Determine to do
first, the jobs that are most important. There are just 24 hours in a
day, to be divided into productive time, leisure time and sleeping.
(16) STAY OUT OF COFFEE SHOPS. Instead make
appointments with experienced farmers to discuss problems.
Don't talk about weather; instead take a note pad when visiting
that successful neighbor. He'll probably be flattered you're
treating him as a consultant.
(17) READ MORE NEWSLETTERS WHICH GIVE CON-
CRETE ATTEMPTS AT ECONOMIC ANALYSIS. Read fewer
newspapers which contain gloom and doom stories but no real
answers.
(18) CHECK OUT ALL PROVINCIAL AND FEDERAL GRANT
PROGRAMS at government offices and be sure you're not
missing any.
(19) ANOTHER WORD ON THE MONEY DRAIN OF THAT
EXTRA CHUNK F LAND (NUM. ER 2). If you live in an area
where land prices are buoyant; if you own a parcel of land which
would be hotly pursued by a few enthusiastic neighbors who
would bid the price of it up: let them have it. Even if you have to
take back a mortgage to sell it, the proceeds may go a long way to
paying off existing debts. Leftover proceeds would make good
money in short-term deposits.
(20) If going out of business is inevitable, keep talking to
people: wife, doctor, friend. Tragic things happen in tough
economic times. Don't carry all the weight on your own shoulders.
The economy has taken even the smartest of analysts by surprise.
Bad luck has hit many farmers. THERE IS STILL A FUTURE.
The above is reproduced, with permission, from "Farmland
Canada", an agricultural land trading and management guide
published monthly at R.R. 3, Woodstock, Ontario N4S 7.V7
THE RURAL VOICE/DECEMBER 1981 PG. 7