First off, a quick note. If you have an interest in the Farm Buying Toolbox, or could use help buying ground before next fall, the last sale this season for the Toolbox will be coming soon. Make sure you are signed up at the link so you don't miss out.
Sign up here: Farm Buying Toolbox | Farm640
SW Financial Literacy
Refinance Debt
What options are out there?
I recently spoke at a Q&A for a paid marketing class and was presented this question after the course:
Question: You indicated that refinancing or restructuring is not an option now because of cash flow and current interest rates. Is that a just a general statement? What about an operation that has limited debt payments and a strong balance sheet that needs to generate cash for a 35% down payment to buy the farm next door?
Response: The lack of refinancing or restructuring was a general statement for individuals who are backed into a corner and looking for a way out of their financial troubles. 5-8 years ago, when individuals ran out of cash, or they couldn't make the operation cash flow because of large debt payments, there was an ability to restructure debt on most balance sheets to solve for both cash and cash flow problems.
Due to the combination of high interest rates and very tight (usually negative) cash flows today, it does not make sense to refinance debt to fix a cash or cash flow issue because restructuring debt will only make the cash flow worse. Old debt is still on low interest rates and on favorable terms, so refinancing at a higher interest rate is pointless. Refinancing operating losses today only compounds the cash flow issues.
However, if you are in a position of strength and aren't looking to restructure debt for the purpose of getting out of a corner, but instead taking advantage of an opportunity to grow, it could be the right option for you. Make sure to stress test your cash flow to make sure this is the right decision for your position.
NW Call to Action
Contrarian Ideas
Warning: Not the most popular opinions below.
I saw this image on X.com a few weeks back (follow me @gwiesefarms) and wanted to share it with you.
This is how I feel about farming. If you don’t buy farm ground and only choose to pay rent, you will never get ahead.
There are plenty of farmers who only rent ground, and that is okay! The point of this week’s newsletter is to throw out some one-liners that I feel apply to MOST situations, but not for everyone. I expect you will disagree and maybe be upset by a few of these, but I want you to consider deeper what each means, see how it applies to you, and determine if there is something you can learn from it.
Disclaimer: Every operation and financial situation is different, so no thoughts are the correct advice for everyone. BUT CHALLENGE YOURSELF TO SEE WHERE YOU COULD DO BETTER.
Contrarian Ideas
Non-farm income isn't a bad thing to make it work. It gives you an opportunity to learn new things and cover living expense for easier farm growth (not to mention a competitive financial advantage when bidding against those without it).
Do you know what a breakeven farm is after you write the rent check? Breakeven. Do you know what a breakeven farm is after you make the land payment? Profitable. Because of principal pay down you earned equity.
In many instances, you should be borrowing more.
For most (most, not all) operations: 5 equipment/vehicle loans is your max. Anything more than that and your installment debt payments are WAY too high to earn a profit with current breakevens.
Stop paying off term debt while you are running an operating balance.
Real estate debt grows your wealth faster.
Lacking a consistent plan for grain marketing is like day trading the stock market. No set, consistent plan with money is gambling.
You shouldn't be great at all areas of farming. You only should be great at a few things while outsourcing (and being competent) with the rest. This will get you ahead faster and last longer.
There are hundreds of ways to buy ag real estate. If you have only bought ground 1 or 2 ways, you are missing countless opportunities.
Conclusion
Gain knowledge of what a strong financial plan really looks like. Sometimes the best plan of action is not what your neighbors are doing.
Need help with your operation's financials?
Have you updated your financial statements for the year?
Did you complete a review of your position with your lender?
If not, this is a dangerous step to skip. How will you know if you are in a position to buy ground (and how much ground) without getting a lender's feedback? How can you learn anything new without a review?
If you missed this crucial step during your renewal appointment, there is still time. I've opened up 30-minute financial review consultations helping you:
Update your balance sheet for the year if not yet completed.
Give feedback on the strengths and weaknesses of your position.
Help you plan for growth.
Sign-up here if my services can benefit your operation:
Also, I want to continue bringing you the resources to help you grow while in a healthy financial position. If you ever have an interest in the Farm Buying Toolbox, sign-up here:
I can’t wait to be in touch and start helping you toward your goals.
Have a great week!
Grant
