During the boom years of $8 corn and $17 soybeans, many farm operations bought lots of new machinery and built giant shops. These added assets altered the balance sheet, creating a large liability in debt payments.
Today, with tight margins in farming, these liabilities are massively burdensome for many operators. I’ve been banging the drum for a long time, but you need to know that cash is king. You won’t go broke because you don’t make money; you’ll go broke because you run out of cash.
You’re burdened with debt, but there steps to get out from under it. Follow these six steps to lighten the load.
1) Refinance Debt With the FSA at Lower Interest Rates
This should be your #1 priority. Basically, your goal in refinancing is to make your annual cash payments less. The FSA has a lot of programs. By going to the FSA, or your bank, you can likely lower the interest rate, which lowers your payments.
2) Extend the Terms of the Loan Out as Long as Possible to Help Cash Flow
Obviously, a 10-year loan is more expensive than a 20-year loan on an annualized basis. Yeah, you’ll pay more in interest, but if you need to extend your loan in order to get through these lean years, do it.
And if your bank is willing to help you out, take advantage.
3) Sell Any Absolutely Unnecessary Assets
Take a look around at your assets (equipment, etc.). If you’ve got augers, old trucks, or scrap metal lying around, liquidate that stuff: turn it into cash.
Figure out how much of the stuff on your balance sheet you actually use. Eliminate the rest; you don’t want things just sitting around. Your banker will be pumped.
If you’ve got old augers, bring them in for the winter, keep the guys busy, replace the bearings, put a new paint coat on, and then try to sell them for $1,000-$2,000 or whatever you need. You might be able to take the winter’s work, give the guys enough work to stay paid, and be able to pay off some debt at the same time.
4) Rent Out Shop Space When It's Not at Full Capacity
Maybe you haven’t bought too much equipment, but you have built big shops with too much empty space. The guys that have too much equipment usually need a place to store all that equipment, so you can rent shop space.
I’ve done this quite a bit. I’ve got all these sheds, and I’ll store boats, sprayers, trailers, everything. I make sure all my space is filled out, with either my stuff or my neighbors’.
Also, if you’re next to a co-op, and you’ve got a nice shop, you could get a good premium to have their guys working in there.
5) Rent Out Any Unused Machinery to Help Make the Payments
There’s a really interesting company called MachineryLink. Check it out: you can rent your combines and other equipment out. This is a great idea, especially since you’re only using certain equipment for a couple of months a year and then it’s just sitting around. For those guys that didn’t buy a lot of machinery or had to liquidate it, they can rent it from you.
Yeah, you’ll have to do a little extra maintenance, but the cash will be there in the end.
6) Offer Custom Services, if Possible, to Help Pay for the Machinery
If you can offer custom planting/spraying and give a better price than others, do it. I hire a lot of help; it costs me money, but stuff gets done. Most farm work is time-sensitive, and people are willing to pay to get it done.
Get creative, too. Clean driveways, hay ditches: I mean, you can offer just about any service if you’ve got a little excess capacity.
Debt is a stifling reality for any farm operation, but as you can see, there are usually ways to wiggle out of it—or at the very least, to keep your business afloat.
Two more resources:
- Tractor House (a place to list machinery)
- eBay, of course
Want some more strategies for overcoming low commodity prices and shedding debt? Check us out @ Cash Cow Farmer.