4 Smart Business Moves for Farms in 2023

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With planting and input decisions already heavy on their minds, ag businesses are asking how they should manage their decisions around raised input costs and higher interest rates – and a potentially challenging year ahead.   

Pinion ag advisor, Kala Jenkins, outlines four smart risk management moves that can help your business prepare for business in 2023, and pinpoint your working capital and cash flow needs.

  1. Look at loan renewals – early.

“With lower returns predicted, it’s likely that more producers than usual will be using lines of credit for their 2023 operating needs,” says Jenkins. “The heavier volume of loan applicants means lenders will be busy. They might do deeper dives into your financials and probably ask for more than they typically do.”

Pinion Pro Tips:

    • Organize the data and documentation you’ll need to share with your lender.
    • Update balance sheets.
    • Gather tax returns.
    • Pull together cash-flow numbers.
    • Prepare a budget that extends through the entire crop year. (From input purchases to last sale – including sales into 2024).
    • Collect loan documentation and double-check with lender for what should be submitted.
  1. Prepare for the unpredictable.

“Look at preserving profitability as much as possible against factors such as drought or input supply issues. Do you have a crop insurance or livestock loss program in place? What if you can’t get the parts or supplies you need for next year? If you lose your buyer or customer, where else could you sell?”

Pinion Pro Tips:

    • Work with a strategic advisor to sort through potential challenges and incorporate a risk management plan for events beyond your control.
    • Revisit that plan throughout the year.
  1. Be careful about third-party financing.

“Many suppliers, equipment dealers or local co-ops offer deals or discounts on “cash upfront” purchases. Those can have their advantages, but think carefully about using other forms of credit to pay for them. Are you truly getting the 10% cash discount if you have to borrow from your line of credit with its 5% interest rate?”

Pinion Pro Tip: 

    • There is concern that producers could extend debt beyond repayment capacity. If you do have other lines of credit or third-party financing, disclose them to your lender.
  1. Be open with your lender.

“Communication helps your lender understand your operation and builds trust and credibility.”

Pinion Pro Tip:

    • Maintain your connections with your lender during the year. The more they know, the better and more quickly they can help you.

Contact a Pinion advisor to establish a proactive risk management plan for 2023. 

Ranch and farm financial advisory:  Leverage Pinion’s ag-focused experts and turn your numbers into strategic business power for trustworthy insights, effective decisions, and productive results.  Learn more here:  https://www.pinionglobal.com/services/agknowledge/

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