Recommended Free Tools
Farmers can prepare for financial uncertainty by reviewing liquidity and debt for near-term resilience, then checking each major spending or borrowing decision against longer-term goals for farm size and profitability. That is the advice Brian Philpot, then president and CEO of Florida-based agricultural lender AgAmerica, gave in a 2020 interview with Successful Farming. It is a planning framework, not a universal set of financial targets.
Why farm finances need both short- and long-term planning
Weather, global markets, and changing input and other expenses can all put pressure on a farm business. “Farming’s a volatile business,” Philpot said. Because those pressures can arrive before a farm has time to adjust its plans, a useful review looks both at what the business can absorb now and at where it intends to go over time.
Successful Farming’s February 6, 2020 article does not prescribe a particular loan, debt ratio, working-capital target, or reserve amount. Its recommendations are best treated as prompts for a farm-specific review with the people who understand its finances.
How to stress-test near-term financial resilience
Philpot recommends examining the farm’s financial position and balance-sheet structure, with particular attention to debt, current assets and liabilities, working capital, and available liquidity. He describes those factors as closely tied to a farm’s ability to withstand an unforeseen event: “The structure of that balance sheet, and the amount of debt you have, and the amount of working capital liquidity you have access to is a direct correlation in your ability to withstand that unforeseen incident,” he said.
#1 Best Overall
- Take stock of the balance sheet. List assets and liabilities, including current assets and current liabilities, so the farm’s obligations and resources are visible together.
- Review debt and liquidity. Consider how much debt the business carries and what working capital or cash is accessible to meet near-term needs.
- Consider a rainy-day fund. Identify what reserve is available for unforeseen costs or disruption. The source does not set a universal reserve amount.
- Work through a worst-case scenario. Consider how the farm would manage if an adverse event affected its operations or finances, and which variables would matter most.
- Discuss the picture with advisers. Philpot suggests working with a lender and financial advisers to assess the relevant variables and the farm’s ability to withstand a shock.
This kind of stress test is a way to surface vulnerabilities and questions; it does not guarantee the farm can avoid losses or withstand every event.
How to keep long-term goals intact
A longer-range plan should make the farm’s intended direction concrete. Philpot recommends setting goals for debt load, working capital, farm size, and profitability, then aligning near-term decisions with those aims. He described a 20-year horizon as an example, not as a required planning period or a benchmark.
“On that 20-year plan, people need to have goals as to how big of a farm they want and what is their profitability ratio. And they need to be disciplined about that,” he said. The practical test is whether a proposed purchase or borrowing decision supports the farm’s chosen scale and profitability objectives while leaving its finances positioned as intended.
Balance spending and borrowing against liquidity
A purchase can affect more than the asset being acquired. Drawing down working capital while also increasing debt may weaken the cushion a farm has for unexpected events and pull it away from its longer-term plan. Philpot put the role of that cushion plainly: “You want to think of your working capital, your cash, as the buffer against those unforeseen circumstances.”
Free tools Windows power users keep installed
One-click scans. No signup required.
Before committing, compare the decision’s effects on working capital and debt load with its expected contribution to the farm’s stated profitability and growth goals. The source offers no numeric thresholds for deciding whether a purchase or borrowing level is appropriate, so the answer depends on the farm’s own balance sheet, circumstances, and plan.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What Philpot said about data and agricultural lending
In the 2020 article, Philpot expected data to help lenders decide how much and when to lend and to counsel borrowers on balance-sheet structure. He also expected agricultural lending to remain relationship-oriented. These were his forecasts at the time, not confirmation of current lending-industry practice.
Read the original Successful Farming article by Trevor Holbrook, published February 6, 2020.
Quick Recap
Product prices and availability are accurate as of the date/time indicated and are subject to change. Any price and availability information displayed on Amazon at the time of purchase will apply.
The Tool Desk
Outbyte PC Repair FREERepair Windows errors before they cause bigger problemsFix Now →Outbyte Driver Updater FREEScan for outdated or missing drivers - takes under a minuteDriver Scan →
