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Extension > Agricultural Business Management News > Challenging Times & the Need for Financial Planning

Wednesday, July 8, 2015

Challenging Times & the Need for Financial Planning

By: Pauline Van Nurden, Extension Educator

Minnesota poultry producers are currently experiencing the impacts of the most devastating outbreak of avian influenza on record. To date, millions of turkeys and chickens across the state of Minnesota have been lost to the disease. Producers are dealing with many challenges at the current time – euthanizing birds; cleaning and disinfecting their premises; and all the other physical and emotional challenges related to starting production again on their farm.

It is easy to get wrapped up in the daily management of all of these tasks. And, it is difficult to begin considering the financial planning implications of this disease on the farming operation. Yet, it is important for producers to assess their current financial position, look at scenarios for the future, and assess the best path for the future success of their operation.

“Where to begin?” may be the question coming to many producers’ minds. First off, I suggest assembling the “financial team”. This may include the banker, accountant, financial planner, market representative, and/or other key members of the farming operation and related industry partners. This group can assist with developing the plan to put the farm on the best financial footing going forward. Open, honest communication will be essential for all members of the team. Important considerations may include: What are the immediate financial and cash flow needs of the operation? Can current loan terms be amended (if needed)? What are the capital improvements or long term needs of the operation?

To start the process, it will be necessary to assess the current financial position of the operation by completing a balance sheet. This assesses where the farm is at and gives insight into the future needs of the operation. This is also the starting point for a cash flow projection or long range budget plan. Making this future plan, looking at options and scenarios, and prioritizing the current and future needs of the operation will help the farm meets its goals and be successful long term.

There are several loan programs available to poultry producers as they work to weather the avian influenza storm. But first, a good plan is needed to assess whether borrowing additional money is the best option for the farm. More debt to service with the same or less income may not be in the best financial interest of the farm. You will need to work with your current lender for many of the available loan programs, as they are guaranteed loans to the bank or participation loans with the bank. Programs to consider with your lender include: Farm Service Agency (FSA), Small Business Association (SBA), Farmer Mac, or MN Rural Finance Authority (RFA) Loans, again – communication is key.

One loan program of particular interest to MN poultry producers should be the RFA’s Disaster Recovery Loan Program. This loan program is designed to help farmers that have been affected by avian influenza and can be used for cleanup costs, flock replacement, building improvements, or to cover lost revenue. This is a loan participation program between a local lender and the RFA. The RFA’s portion of a qualifying loan is limited to 45% of the principal amount of the loan, up to a maximum of $200,000. The current interest rate of the RFA’s loan portion is 0%. Other loan terms (including down payment, collateral, repayment schedule, and amortization) will be determined by the lender and RFA. Maximum loan term is 10 years, with initial interest only payments allowable.

It is very important for all farmers to be aware of their financial position and the future plan of the operation. This becomes even more important at challenging times. Working with a good financial team, using strong financial tools, evaluating current financial position, planning for the future operational needs, and managing accordingly are all important steps for the future success of any business. I encourage MN poultry producers to consider their current financial position and plan for the future of their operation. Several tools are available to assist in this process. Start by contacting the MN Farmer Assistance Network or looking to the farm financial planners available to help navigate the path of recovery.


Additional Resources

A basic overview of the potential loan programs that may be of assistance for your operation can be found at the following link. More information related to Agricultural Business Management Programming by University of Minnesota Extension can be found at http://www.extension.umn.edu/agriculture/business. The Poultry U website also has a wealth of useful topics for producers. This University of Minnesota site can be found at http://www.poultryu.umn.edu/.


Questions or comments?

For additional information or any related questions or comments, feel free to contact Pauline Van Nurden at pvannurd@umn.edu or (320)-589-1711 (office).

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