Putting thought into your financial state can be stressful in anyone’s mind. Instead of putting off your conversations with your banker until it's too late, get yourself in the position to be ahead of the game from the start of the new year! Our friends at Big Valley Capital are providing you with 6 tips to straighten up for 2021 farm financials. With over 25 years of experience, Big Valley Capital is confident they can move more efficiently than a traditional bank.
1. MAKE SURE YOUR 2021 CROP FINANCING IS READY TO GO?:
Your bank should have already completed or should be finishing up your 2021 crop line of credit. If not, it’s time to talk to your banker.
2. MONITOR RECEIVABLES FROM THE 2020 CROP:
Keep a close eye on the receivables not yet collected for the 2020 crop. This amount needs to equal or exceed your crop line balance and remaining payables left on the 2020 crop (if any). Make sure to estimate any expenses not yet billed in the calculation.
3. CAREFULLY TRACK EXPENSES FOR THE DIFFERENT CROP YEARS:
Most mistakes with crop expenses occur at this time of year. This is because farmers receive invoices for the last of the expenses in the prior year’s crop AND they pay expenses early for next year’s crop. Make sure to tie the expenses to the correct crop year. You can even work with your vendor to note the crop year on the invoices or even have them provide you separate invoices for expenses in different crop years.
4. DON'T RENEW YOUR CROP LINE, GET A NEW ONE:
If possible, work with your banker to get a new crop line. Often, a bank will renew the old crop line using the old loan number. If you can, ask your banker to give you a new line with a new loan number. This splits the lines up in the bank’s accounting system and allows you to see the remaining balance on your old line of credit. You can draw separately on the new line for money spent on the 2021 crop. This is another good way to keep expenses for the crop years separate.
5. DON'T BE AFRAID OF QUICKBOOKS:
When your bookkeeper is entering crop expenses into Quickbooks (or whatever accounting program you are using) don’t be afraid to change the names of the accounts. For instance, instead of having an account called “Fertilizer,” make an account called “Fertilizer – 2021.” This will help you keep expenses for this crop year separate from prior years. If you don’t want to change the names of your accounts, use the notes feature in Quickbooks to denote crop year. The more information, the better. Your accountant and bookkeeper will thank you.
6. USE QUICKBOOKS TO SEE IF YOU ARE REALLY PROFITABLE:
Expanding on the point above… if you have multiple crops, segregate expenses by crop year AND crop. For instance, instead of having an account called “Fertilizer – 2021,” split that into an account called “Fertilizer – Almonds 2021” and “Fertilizer – Tomatoes 2021.” This method allows you to easily drill down into the profitability of each crop rather than looking at the operation as a whole. This will also help tremendously next year when it is time to build a crop budget for your bank.
If reading these tips has made you realize there’s more to financing you do not understand, reach out to the Big Valley Capital team to have a consultation! Sean Haynes and Tyler Rath are dedicated financial professionals with lifelong careers in banking. Big Valley Capital provides term and line of credit financing for ag and commercial real estate. Their loan products can be used for purchase of properties, refinancing existing debt (real estate and non-real estate), crop development projects, and replenishing working capital if necessary. The team can also offer working capital financing in the form of operating and crop lines of credit. They can quickly finance equipment, fixtures, and improvements via leasing or equipment loans. Big Valley Capital can also refinance existing equipment or improvements as well. If you have financing needs, please let them know how they can help!
If you are interested in learning more about financing or would like to inquire services, contact Michelle Patterson at 925-207-7784