Farms that maintain current financial statements, communicate with lenders, and actively manage risk are better positioned to withstand economic stress.
This fact sheet highlights the importance of building financial resilience to manage economic pressures and avoid severe financial distress. Financial resilience can be built through rigorous recordkeeping, financial analysis, risk management, and strategic capital investment triage. By integrating free educational resources with federal support programs, producers can better understand their operational health and make informed decisions to ensure long-term viability. Resources are available through several educational delivery methods, including decision tools, multimedia, written materials, and direct engagement with classes and staff.
Core Financial Health Indicators
Developing complete farm records and financial statements is critical to the financial health of your business. Accurate financial statements not only support informed decisions, but they can also improve profitability by identifying areas for improvement and show lenders and other stakeholders your financial viability. Strong financial records can strengthen your relationship with your lender in a variety of ways:
- Good recordkeeping shows organizational and management skills that lenders are looking for.
- Financial statements can provide evidence that your operation can generate enough cash to repay loans.
- Cash flow projections for both year-end and the upcoming year facilitate discussions with lenders and help plan for potential cash flow issues.
- Being able to read your financial statements and explain the results and variances can build your lender’s confidence in your operation’s potential success.
Financial analysis combines your financial statements and production information to show a more complete financial picture. Evaluating the farm’s profitability and repayment capacity helps producers establish a clear baseline of their operation's current standing and helps the operation become more secure during difficult economic periods. Lenders are more likely to approve a loan for an operation that can demonstrate successful financial management and stable financial health.
Source : msu.edu