Five farm focus areas in the time of COVID-19
As the economic impacts of COVID-19 continue to create challenges in the agricultural economy, maintaining up-to-date financials will provide you with an accurate picture of where your operation stands.
Update the balance sheet
Typically, it’s recommended to the farm's balance sheet annually on December 31, to line up with your Schedule F. During tough times, updating your balance sheet on a quarterly or even monthly basis will help alert you to problems faster, rather than waiting for year end.
Monitor working capital
An accurate balance sheet will allow close tracking of the farm’s working capital. Working capital is calculated by taking current assets minus current liabilities. It’s an important measure of the farm’s ability to withstand unexpected setbacks or access additional credit if necessary. While it may fluctuate throughout the course of the year due to changes in inventories, accounts payable, and other factors, a good target is to maintain a working capital position of 15% of the farm’s annual gross income. If working capital decreases or is depleted, it’s time to take action to rebuild it.
Anticipate cash flow
Creating a month-by-month cash flow projection on an annual basis will help to anticipate when cash flow is likely to be short. Being able to anticipate cash shortfalls will help you be proactive in developing ways to offset those shortages. During times when revenue is uncertain, you don’t want to wait until the farm checking account is empty to try to figure out how you’re going to pay the bills next month.
Utilize relief programs
Between federal programs such as the Paycheck Protection Program (PPP) and the Coronavirus Food Assistance Program (CFAP), and various programs offered by state governments and nonprofit organizations, there’s been an alphabet soup of relief offered to farmers. Most are very worthwhile and can help offset some of the losses suffered by farmers. Some, such as the Economic Injury Disaster Loan (EIDL), come with significant strings attached. As with any new program, it’s important to do your research and understand your commitment before you sign on the dotted line.
Dietmann is a senior lending official at Compeer Financial