What your "Farm Financial IQ" means for the future of your business

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As farms continue to become more complex, farm managers have had to ramp up their financial understanding and ability to apply that understanding within their operations.

The expectations of lenders are higher. Part of their job is to determine whether the farmer is a good businessperson. And they make their determinations, in part, based on the level of understanding they believe the farmer has around financials.

Here's some of what's going on in that lender's head as they're trying to gauge your level of financial understanding:

  • Can this farmer have an intelligent conversation with me about their farm's financials?

  • Can they talk not just at a surface level—but dive deeper into ratios and indicators?

  • Do they understand the interplay of different factors?

  • Can they describe how that may affect the farm in the near term and long-term?

  • Do they bring me different scenarios of what the farm's financial picture may look like in the next year, and do they talk through it with me?

  • Do they bring me contingency plans for a variety of scenarios?

  • Does their overall level of financial understanding, along with the other factors I'm looking for, inspire a level of trust in me where I feel confident in this farmer's leadership and business savvy?

  • Do I believe they will run a successful operation?

Build your understanding
I think you can help your lender be aware of your financial understanding by focusing on two aspects:

  1. Make sure you are constantly working to increase your knowledge and understanding of your farm's financials. There are many events and learning opportunities available these days to work on this.

  2. Communicate your financial understanding and apply it regularly in meetings and conversations with your lender. Maybe you're already a farm financial guru, but your lender needs to be aware of your knowledge. They interpret your level of understanding through hearing you explain your farm's situation in terms they would expect to hear from other knowledgeable people in finance.
    Get comfortable with using that language. Apply it to your farm as you review your financials on your own, and use it regularly in conversation with stakeholders like your lenders and landlords.

What work have you done to learn as much as possible about your farm's financials and the numbers that you, as the farm leader, need to keep an eye on? Consider what learning opportunities you might pursue to continue increasing your understanding.

Before meetings with your lender, plan ways to communicate your financial understanding with them. And don't just wait for face-to-face meetings to showcase this—you might call your lender regularly to provide updates and put into practice what you're learning.

* Originally published at FarmFutures.com