Managing risk and planning for change in Agriculture
10 Tips for smooth financial cycles and successful succession.
For many farmers, running their business leaves little time to manage its future. However, if you can put some time aside to invest in planning ahead, you’ll reap the rewards, now and for many years to come.
We’ve put together 10 strategies to help manage your farm’s future, including ways to make your money go further, survive lean times and plan for succession.
1. Apply for government grants
Several government grants help Alberta’s farmers grow and flourish. The Dairy Farm Investment Program provides licensed dairy farmers with up to half of the costs to improve your farm’s productivity and competitiveness, to a maximum of $250,000.
As an Alberta farmer, you could be eligible for funding to improve energy-efficiency through On-Farm Energy Management. This includes On-Farm Energy Assessments (available to dairy, swine, and poultry farms) and Energy Efficiency Retrofits, available to all farm types. Learn more about the grants available at: https://cap.alberta.ca/CAP/Programs.
2. Government loans for farmers
The government has introduced a variety of ways to make borrowing money easier and cheaper for agricultural businesses. With the Advance Payments Program, you could access a loan of up to 50% of the value of your agricultural produce (maximum $400,000 per year). The first $100,000 is interest-free.
Through the Canadian Agricultural Loans Act program, farmers can arrange loans from financial institutions including credit unions. This includes existing and start-up farmers and family taking over their parents’ farm. Your Chinook Financial branch can give you more details.
3. Open an AgriInvest account
AgriInvest is a government initiative designed to help Canadian agricultural producers set money aside to help in lean times, reduce risk or make investments. To qualify, you must report farming income on tax returns and you can deposit up to 100% of Allowable Net Sales. After opening your AgriInvest Account, provide Chinook Financial with your Deposit Notice and the government will match the first 1% of your deposited sales, up to the maximum of $15,000.
Your AgriInvest Account offers interest rates as high as 1.25% and you can withdraw funds any time.
4. Create a business plan
A business plan isn’t just an essential tool to help you get government grants, loans or other sorts of funding. It’s also your blueprint for growing your business and how to achieve that.
Your Chinook Financial branch can help you put one together. You want to make sure it contains these essential elements: An executive summary; goals for the business; your background; ownership structure; financial statements; details of your produce; your market and growth potential; and marketing plans.
5. Protect your farm against the unexpected
What would happen if you were to die or become disabled? Could your family manage the farm without you? Life and critical illness/disability insurance are essential elements in managing risk. They allow your family to continue running the farm in your absence.
The insurance money could help maintain cash flow, hire staff and pay off debts. Talk to your Chinook Financial wealth management specialist to discuss the best insurance for your situation.
6. Risk management
Thinking ahead is one of the best ways to manage risk and ensure you’re covered for all eventualities. To successfully manage risk, you need to have ready access to capital; to be able to pay all of your bills, on time; to survive any short-term, unexpected financial shocks; and to be able to grow your assets.
Just by being aware of the potential risks your business faces will help you to plan ways to overcome them when they happen.
7. Solid financial planning
Maintaining a good level of working capital is essential for successful growth. It means you will rely less on lines of credit or loans, and so maximize your profits. If your working capital is low, you may be forced to sell produce to pay bills, rather than selling at the optimum time, for maximum revenue.
Keep on top of your cash flow situation. Prices can fluctuate considerably, so work out your average income and expenses and use these figures to create cash-flow predictions.
8. Prepare a will
Recent surveys have revealed that over half of Canadian adults do not have a will. This is bad enough when you have a modest amount to leave, but when you own an asset like a farm, it is essential to prepare and maintain an up-to-date will. Not only does a will outline how you want your assets to be distributed, it also allows you to name the executor, the person who will ensure that your instructions are followed.
Dying without a will could lead to your farm being broken up into many pieces and your family members fighting in court. If you want your farm to continue to thrive after you’ve died, you need to draw up a will, right now.
9. Exit and/or retirement planning
According to Stats Canada, 92% of Canadian farms have no transition plan. You will have to exit the business one day, so plan now to ensure that it goes smoothly.
A robust succession plan helps you determine who will take over your farm and how.
Without a succession plan, your family may be forced to sell up, especially in the case of unexpected death or illness. Talk to your Chinook Financial wealth management team to discuss ways to ensure your exit strategy fits in with your retirement plans.
10. Get expert help
Like all business owners, farmers can’t do everything. To grow steadily, you need to plan ahead and get advice from financial experts like accountants, financial advisors and your friendly local credit union.
Chinook Financial can help you to manage your finances through good and bad times, access the funds you need to grow and make sure you have a solid succession plan. Many farmers react to change only when things start to go wrong. Contact us today and we’ll help you to plan for change and manage risk.
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