The Goderich Signal-Star, 1980-04-02, Page 39rg
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' The Farm Union, Week of April 2, 1980. 9
Solid business management pays off
This is the first instal-
ment in a series on farm
financing prepared by The
Royal Bank of Canada's ag-
ricultural services depart-
ment.
Rising farm costs, a
squeeze on net income and a
greater need for capital all
underline the importance of
financial planning on the
farm.
This is the pattern:
— The pressure on farm net
income of recent years may
continue to the mid-1980s,
before world demand for
farm products turns this
trend around, according to
farm economists.
— Inflation, to which farmers
are especially vulnerable,
-m-ay-worsen as fpergy costs
soar -- possibly pushing the
inflation rate from an annul
91/2 per cent into or beyond
the 10 to 11 per cent range.
— Short and long-term credit
needs of farmers likely will
increase.
For Canada's 100,000 com-
mercial farm operators,. then,
sound financial management
is more important than ever
before..
That means using tech-
niques .to forecast future re-
sults, to' identify profitable
operations, to spot and cor-
rect trouble areas, to project
your needs for credit and
your ability to handle the
credit.
Starting this week, a series
of columns entitled The Fin-
ancial Side of Farming will
discuss the main elements of
financial planning, outline
why they are necessary and
suggest ways to approach
each planning function. Sub-
jects will include:
RECORDS - Keeping rec-
ords of income and expenses
helps you measure the strong
,and weak areas of your' farm-
ing activities; up-to-date fig-
ures help support your'bor-
rowing plans and indicate
your ability to repay loans.
OPERATING LOANS
Shor-term operating loans
are used to finance the on -4,
going need for materials,
supplies and labor through
the year; ideally, they should
be of the "revolving" type,
to give you greater flexibil-
ity.
LINE -DT - CREIITT
Should you borrowonly on a
piecemeal basis to the am-
ount of collateral you can put
up for each specific loan? To
avoid limiting yourself in that
way, you might consider
"Line -of -credit" financing
credit iines for variopa pur-
poses, related to your total
credit needs, and based on
your ability to repay. In many
cases, it's a more efficient,
less costly use of credit.
CASH FLOW - It's a way
to forecast your cash position
each month or quarter, es-
tablish your cash needs, plan
for your credit requirements.
ABILITY TO REPAY -
Your schedule for repaying
loans, should be closely alig-
ned with the projected in-
come from your farm; if this
isn't done., there- could be a -.
squeeze on your working
capital and a disruption of
plans for future capital
spending.
PARTIAL BUDGETING -
What will happen in financial
terms if you make a change
in your farm operation?
What new activity Will prod-
uce the best results? Partial
budgeting - using a few key
income and expense figures
in a formula -- can give you
the answers in advance.
MACHINERY PUR-
CHASE - If you need new
machinery, there are options
-- to buy, lease ;or rely on
custom hiring. It's important
to work out the hourly, an-
nual and per -acre costs of
owning a particular machine,
hi order to—compare owner-
ship with leasing or custom
hiring.
LEVERAGE - It involves
risk -- but it also can increase
your net return; it means
substantial credit is used,
along with your own capital,
to try to increase the .net
return on total capital invest-
ed. To make it work, you
must be sure your farm can
yield a return on capital
greater than the cost of bor-
rowed money.
LAND VALUE - What's a
property worth? If you're
buying farm land, you will
want to relate the price to
future productive value.
There'' s a way to estimate
this value, by formula, using
projected product price figur-
es, production levels and
costs.
, LONG-TERM CREDIT -
Mortgage loans increasingly
fill the farm operator's need
for long-term credit -- for
land purchases, property im-
provements, and other pro-
jects. It's important to plan
your over-all credit needs at
the time you consider a
mortgage loan.
FINANCING A LAND
PURCHASE - Rates and
terms vary considerably am-
ong the growing number of
mortgage lenders. The op-
tions are yvorth studying, so
that your farm's repayment
capacity matches the requir-
ed debt repayments.
Although certain details of
farm financing seem com-
plex, you can and should
undertake the broad aspects
of farm financial planning
and avoid the hazards of
guesswork, of the, "trial -and -
error" approach. Farming
today is large-scale business,
and calls for sound business
management.
Farmers and Contractors!
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Alternator
40,
Gas driven to P7® models
Midwest pole top switches
For all your electrical needs
Commercial - Industrial Residential
Ritchie Electric
R. R. 3, Lucknow
Phone 529-7568
T'yAiiis-ChaIrners
Master Lease
mailmen.
To increase your buying power
CALL ON US FOR ALL YOUR
13% Rates
available on new equipment
•Conserve your credit line for . income producing outlays of capital
•Plan a systematic equipment replacement program, some tax benefits
may be available to you
Hackett Farm Equipment features a full line of new farm equipment
Stop in and see farm implements manufactured by Allis Chalmers,
Hesston, Owatonna, Versatile, and Others
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• Backhoeing
• Bulldozing
Trenching
• Trucking
Sand and Gravel
Lloyd Collins
R. R. 3, Goderich , - Phone -395-SZ40-_.____._
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