In uncertain economic times when consumers and businesses are spending less, farmers should think carefully about how much money they want to borrow and how they would use it in their businesses, says Brent Gloy, Purdue University agricultural economist.
"Opportunities may come up, and you may need to borrow money to go after them," he says. "Borrowing in moderation and using the funds for the right things is important."
Some of those opportunities include investments that let farmers expand their operations, save on costs or improve efficiency. But they also should carefully consider incurring debt because unnecessary expenses can threaten financial security, Gloy adds.
"Think carefully about what you need, what the return is and what you're risking,” he says. “On the other hand, you don't want to walk away from things that fit your goals and that you're capable of handling. Just make sure they are the right opportunities."
Finding good business opportunities can be challenging, but that effort can create wealth in the long run. "Rarely will wealth be handed to you," he said. "You will have to make the investment and do the hard work of managing the business to capture the value. Building wealth requires sacrifice. In order to build wealth, you must delay or reduce consumption below income levels.” This means making some sacrifices today for the benefit of having more in the future.
Glov says farmers should focus on business fundamentals and worry about only what they can control. "Too many times we get wrapped up in thinking of the big picture and we don't think about the business’ fundamentals," he adds. Start by understanding where you are and what options you have to make changes.
It’s also critical for farmers to know the cost versus return of every business decision they make and what changes in business practices are necessary to increase revenue.
He offers the following management tips:
* Understand the economics of your business. If you have an advantage, always work to increase it.
* Don’t be paralyzed by analysis and complication. Do not blindly make big decisions based on faith.
* If you find yourself in financial trouble, address it early and honestly.
* Clearly understand risk and return trade-offs. Don't gamble your financial security for things you don't need.
* Invest in yourself. Your knowledge and talent is the most valuable set of assets that you own. Make good choices here and you will reap benefits for years to come.
* Invest in those around you. There are many talented people in this world. You will clearly be better off if they are working to help you solve problems. When you invest in someone else it usually pays dividends down the road.
Source: Purdue University