Farmers of all descriptions will take on debt during their farming career. For some, it’s paid off nearly as quickly as they acquired it. For others, debt may follow them their entire career. In either scenario, or one unique to your farm, the natural question arises: How do you manage it?
There are many correct answers, but it must work for the farmer to manage, draw down or eliminate debt. Times of uncertainty can make debt even more precarious.
Financial food for thought
When it comes to farm debt, one main concern is cashflow, according to Jennifer Hoogendoorn, MNP’s Manager of Tax and Assurance, in Clinton, Ontario.
“What is [a new asset] going to bring to your table?” she says. “If you’re going to build a new barn, is it going to increase productivity? If so, by how much?”
A new implement shed, while attractive, should be reviewed with prudence to determine what financial benefits, if any, come with its construction.
Is it worth it?
“If the implement shed is worth it and saves wear and tear on the equipment, there still has to be a cashflow consideration of how that’s going to play out. When considering a combine purchase, the price of the shed should be included in the calculations.”
Hoogendoorn says farmers restructure existing debt for many reasons, including changing life goals, new business opportunities or lower interest rates.
But she offers a word of caution about interest rates and suggests that even though a number may seem appealing, it must be carefully considered.
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