File C3-58

October 2015
www.extension.iastate.edu/agdm

Farm Financial Management: 16 Ways to

Stretch Cash Flow

N
o matter how well you budget or how 5. Lengthen the repayment period on term
efficiently you manage your farm loans. Rewriting a 3-year note to a 6-year
business, there may be periods in note will cut the payments nearly in half.
which cash flow is negative. No one knows for Of course, more interest is paid in the long
sure when these periods will occur, and how run. Balloon payments can also be used
long will they last, but every operation should to reduce debt servicing in the short run.
have a financial contingency plan to provide This would allow for shorter payments in
for unexpected cash flow shortfalls. the short term and a large payment at the
end of the borrowing period, when cash
The following actions can be taken to improve flow is improved.
an operation’s liquidity when projected cash
inflows fall short of projected cash outflows. 6. Defer capital asset purchases until
They are listed in order of expediency. cash flow improves. Refurbish equipment
instead of replacing it. Reduce livestock
1. Utilize cash surpluses built up from culling rates instead of buying replacement
previous years. This may involve tapping breeding stock.
into savings accounts or liquidating
financial assets. 7. Combine farms on your crop insurance
policy to take advantage of premium
2. Liquidate stored crops and market discounts for enterprise units.
livestock. This is part of the farm’s
working capital. Note that this is a 8. Take advantage of Farm Service Agency
short-term strategy. Crop and livestock (FSA) guaranteed loan programs to
inventories should be rebuilt as soon as reduce your credit risk and improve
profits become more favorable. repayment terms and interest rates. FSA
also offers low-interest marketing loans
3. Tap into a credit reserve or unused on stored grain for up to nine months.
borrowing capacity for both current
expenses and longer term investments. At 9. Increase nonfarm earnings. Part-time or
some point lenders will put a limit on how full-time employment by a family member
much debt can be accumulated, though. may not only bring in added income, it
may reduce health care and insurance
4. Use equity in long-term assets such as land expenses. Alternatively, use farm assets
or machinery to refinance excess current such as machinery or shop facilities
liabilities if the need arises. Payments can to perform services for other people.
be scheduled over several years instead of Examples include moving snow, hauling
being all due in one year. grain, installing tile, repairing machinery
and remodeling buildings.

William Edwards
retired extension economist
 Page 2 File C3-58

10. Decrease nonfarm expenditures. Postpone 16. Seek outside resources. Rely on relatives
investments in vehicles and non-essential or other personal contacts for emergency
assets. Limit travel and recreational financing or for the use of machinery or
expenses. Utilize consumer credit or buildings at little or no cost. Businesses
educational loans, if necessary. operating as a corporation or LLC may be
able to sell shares to non-farm investors.
11. Cancel or renegotiate leases if high cash
rents make it unlikely that you will at Low prices and high costs affect everyone.
least cover variable costs. Alternatively, These actions are not substitutes for operating
propose a flexible cash rent or crop-share a profitable business. In some cases, actions
arrangement. Cash outlays can be reduced that are not profitable in the long run may
even further by converting a lease to a have to be taken in order to cover cash flow
custom farming agreement. obligations in the short run. But, depending on
the severity of the farm’s financial condition,
12. Sell off less productive assets to raise any of them can be applied as a means to
cash. Compare reduced costs and lost continue operating until profits increase.
income to identify assets that will have the
least negative impact on total farm profits. Financial stress can lead to increased stress
If the land base is reduced, down size in other areas. During unprofitable times
machinery, as well. in agriculture, check in with friends and
neighbors. If you or someone you know
13. Own machinery jointly with another is struggling, encourage them to seek
producer to lower fixed costs, or trade the professional help, possibly from a medical
use of equipment and labor with someone professional, clergy person or counselor.
with whom you can work well. Assistance is also available at any time through
14. If liquidating assets produces a large the Iowa Concern Hotline, 800-447-1985.
taxable income, check to see if averaging Iowa State University Extension and Outreach
income with prior tax years can reduce offers a free and confidential program called
your tax liability. Farm Financial Planning. It consists of one-
15. Lease assets instead of owning them. on-one counseling with trained farm business
Machinery lease payments are often lower consultants who provide help developing
than loan payments. In some cases, cash accurate financial statements, budgeting
flow can be improved without reducing alternative actions, and contacting other
farm efficiency by selling assets and then extension programs or outside services that
leasing them back, thereby maintaining may be useful. More information is available at
the size of the operation and fully www.extension.iastate.edu/farmanalysis/. For
employing labor. Investors may be willing a list of Farm Financial Planning associates
to purchase breeding livestock or land and go to www.extension.iastate.edu/farmanalysis/
allow the operator to continue providing associatelist.htm.
labor and management.

. . . and justice for all

The U.S. Department of Agriculture (USDA) prohibits discrimination in all its programs and activities on the basis of race, color, national origin, gender, religion, age, disability, political beliefs,
sexual orientation, and marital or family status. (Not all prohibited bases apply to all programs.) Many materials can be made available in alternative formats for ADA clients. To file a complaint of
discrimination, write USDA, Office of Civil Rights, Room 326-W, Whitten Building, 14th and Independence Avenue, SW, Washington, DC 20250-9410 or call 202-720-5964.
Issued in furtherance of Cooperative Extension work, Acts of May 8 and July 30, 1914, in cooperation with the U.S. Department of Agriculture. Cathann A. Kress, director, Cooperative Extension
Service, Iowa State University of Science and Technology, Ames, Iowa.