Friday, July 12, 2024
Chris Judd

The seven bank accounts of a farmer: #6 money

Dad used to say, “it’s no disgrace to be poor, but, sometimes it’s damn unhandy.” If you can, keep a little money aside for emergency. You can decide how much is “a little.” Grandpa said, “don’t be afraid of a little debt, it keeps you sharp.” There are different ratios of “debt to net worth” that your business can comfortably stand, depending on dozens of criteria such as the business that you are in, method of marketing, a long-term business plan, world trends, how knowledgeable your lender is, etc.
We once had the opportunity to listen to Dr. Hiram Drache, a very smart farmer, businessman, financial adviser, American historian, and professor in agricultural economics. Hiram once talked about the 5 M’s to success. The three most important are, mate, money (your banker), and mechanic. Hopefully, your mate is for life and has the same dreams as you do. If you ever get a banker that is not quite knowledgeable enough in your agricultural field then, sooner or later, you will have to find another lender. Either you or a very trusted employee must be an excellent mechanic, keeping machinery repaired and ready to work before you go to the field. Sometimes, such as when the water pump or any of the milking equipment quits, repairs must be done immediately.
Everything you buy or lease must be placed in a short, medium, or long term investment category and whether you use your own money or borrowed money, financed, placed in your net worth, and depreciated accordingly. Land will usually increase in value faster than the rate of inflation, but buildings built for a specific type of farming will depreciate both as they get older and as new technology makes them obsolete. Newer machinery may depreciate faster than what your dad farmed with because of increased use of computerization in the machinery. Recently, a mechanic showed me the service manual for a “newer” tractor, and it was 900 pages long.
Depending on whether a farmer is planning for the next generation to take over or maybe just sell out in a few years, he may continue improving the farm or let the fertility, fences, drainage, soil life, genetics and quality of seed planted decrease in value. This may be great for his bank account for a few years but not good for whoever the next owner of the farm is.
We can all remember a farmer who died with a lot of money invested and stashed away in some foreign bank, but the farm never grew like the neighbour’s did for years after he died. Many of our previous generation of farmers maintained a wonderful bush lot that was never clear cut. That bush lot was their “just- in-case” fund for a devastating barn fire or some other serious financial event that could mark the end for that farm. Many of us can remember a farm that was dismantled, and money invested in a sure thing investment which went defunct a few years later leaving everyone involved in a much worse state.
Dr. Drache also said, “until you walk down the gravel road kicking stones, wondering where the next dollar will come from, you may not realize the importance of good farm management.”
This marks the end of the seven bank accounts of a farmer series. You can decide which one is most important for any business.

Chris Judd is a farmer in Clarendon on land that has been in his family for generations.

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