Contributed by Melissa O’Rourke, B.S., M.A., J.D. former Farm and Agribusiness Management Specialist, Iowa State University Extension and Outreach

The farm economy is cyclical in nature, and in recent years has been impacted by one crisis after another. Agricultural credit conditions are described as having an overall decline which deepened in the first quarter of 2020 after some signs of improvement in the fourth quarter of last year. On the ISU Extension and Outreach Farm Management team, we hear from farmers and agricultural lenders about rising debt levels, cash flow issues and farm financial stress. 

Farm financial stress can generally be thought of as an inability to meet debt service payments – both principal and interest. The severity of the financial stress depends on the debt level, interest rates (cost of the debt), and the farm income available for debt service. In recent years, low interest rates and sufficient farm income have kept financial stress at bay for many operations. Nevertheless, we continue to hear from producers and lenders about elevated levels of financial stress on the farm.

Confronting a tough financial situation is a challenge for anyone. It’s not unusual for producers to procrastinate and avoid facing the problem. Just hoping things will get better is not a solution – but many folks do not know where to start.

Following are several suggested actions to get started in figuring out how to proceed. This list of tactics to consider are not necessarily in a particular order – but presented as possible approaches to move forward and address the problems, depending on the farm business and family circumstances.

Tactic One: Seek support for stress management

Financial difficulties can cause significant emotional stress. Start by talking to someone. Do not be embarrassed to reach out to family members, friends, or professionals who can just listen. A good place to start may be the Iowa Concern Hotline via the website (which includes e-mail or chat) or the toll-free number: 1-800-447-1985. Since 1985, the Iowa Concern Hotline has been available 24/7 with trained counselors who can provide access to an attorney for legal education, stress counselors, information and referral services for a wide variety of topics.

Tactic Two: Gather debt and income information. 

While good accounting would direct us all to have current financial documents – starting with a balance sheet (or net worth statement) and income statement – folks who are facing strained finances may have avoided record-keeping tasks. Start by gathering all debt information – both for the farm as well as personal debt (vehicles, credit cards, personal spending). It’s useful to have an online or computer-based accounting system, but do not hesitate to get back on track with a pad of paper or the back of a pizza box. Write it down – balance owed, to whom, and when the next payment is due (monthly, quarterly, annually) and the payment amount. After starting this process, explore the financial planning resources available on the Ag Decision Maker website. Guidance is available on how to build financial statements, including information on understanding and building net worth statements (the balance sheet) and farm income statements. 

Next, estimate available expected income during the next twelve-month period. Again, include all possible income from on-farm and off-farm sources.

Part of this information gathering should include collecting any written communication or notices that may have been received from lenders. The act of compiling this financial data is a first step in facing the extent of the problems faced. Defining the problem may help stimulate ideas for solutions. And, to get help from advisors, a fairly-accurate picture will be necessary. 

Tactic Three: Evaluate the assets

Again, an updated balance sheet would enumerate and place values on current, intermediate and long-term assets. But think about assets that may not appear on the balance sheet. Go over the most current balance sheet available, and add any assets that might not appear there. Include farm and personal assets. Are there items of equipment no longer needed? Is there a motor home no longer in use? Is there a land parcel that is no longer an essential part of the farm operation? Make conservative, best estimates of the value, and consider whether the asset could be used to generate cash.

Tactic Four: Outline possible plans, identify advisors

Have a personal brainstorming session. This is not intended to be a final, detailed plan, but an outline of possible strategies going forward. To assist, think about who might be able to help identify strategies. This might be the farm bookkeeper, accountant, tax or other financial advisor, a personal lawyer, an insurance professional – someone that can help with financial troubleshooting to focus on where solutions may lie. There may be other respected people with good judgment and a set of clear eyes who could give a fresh perspective on the operation. These are the kinds of people to sit down with, talk things through, and see what ideas might arise. 

Tactic Five: Cash generation and belt tightening

Basically, financial problems arise when income exceeds expenses – due to an assortment of causes. Contemplate assets which could be used to generate cash, either through sale or lease—but remember there may be tax consequences of selling depreciated assets. Is there custom work or other services that would raise some income? Explore off-farm employment of one or more household members. Consider both farm business and personal or family-living expenses. Eliminate or reduce discretionary spending. Medical insurance is a significant expense which may be decreased via off-farm employment. Ideas on how to stretch cash flow can be found on the Ag Decision Maker website.

Tactic Six: In-depth farm financial analysis

Iowa State University Extension and Outreach offers a free farm financial planning and analysis program. This service consists of confidential financial counseling, a computerized analysis of the farm business, and possible referral to other useful programs or services. The program uses FINPACK software to provide a more complete picture of the farm’s financial situation. An in-depth plan with options helps a farm operator work with lenders to make decisions for the future. Trained extension associates meet with farm operators to discuss the results of the analysis as well as the impacts of possible changes. The service is offered at no charge. 

Tactic Seven: Communicate with bankers, lenders, creditors

Avoidance is not a winning strategy, and it’s common for those facing financial stress to sidestep those to whom money is owed. Make a list of set times to visit in-person about the situation. Bring along the data that has been gathered – accompanied by an outline of proposals to address the problems. Before the meeting, review guidelines of good communication skills. If communication has become strained, consider bringing along one of the other advisors or professionals that may have assisted in brainstorming or analyzing the situation. A third party may be able to serve in a facilitation role, at least to take some of the stress out of the conversation. As part of the communication process, openly share ideas for cash generation or expense reduction. There is the possibility some aspects of the farm operations have become unprofitable and should be eliminated. Talk about ideas for debt restructure – perhaps debts that could be consolidated, or stretched out to reduce payments.  In this regard, it may be worthwhile to talk to other lenders who might have a different view of the future potential of the farm business.

Tactic Eight: Professional advice on debt restructure or bankruptcy

Depending on a wide range of factors, it may be wise to seek professional advice on the need for debt restructuring. Iowa State University’s Center for Ag Law and Taxation (CALT) provides a number of resources and articles that can facilitate the thought process. In particular, there is an article on how to find an attorney who has expertise in this field and can provide solid advice on next steps.  

Tactic Nine: Explore mediation services

Mediation is a process where parties meet with a neutral third-party who assists in identifying solutions to a problem or dispute. Information is available about agricultural mediation services at the CALT website, including a video about how mediation works. In Iowa, mediation may be a voluntary process – but it may also be mandatory. Iowa Mediation Service is a non-profit organization founded in 1985 and dedicated to solutions for farmers, families, and anyone who may find themselves in need of a dispute resolution expert. There is even a short video that explains agricultural mediation services. If the farm’s financial situation has reached a point where professional mediation services are needed, this is an excellent resource available to Iowa farmers.

Tactic Ten:  Contemplate retirement or liquidation

For some folks – depending on age, health, family situation, and many other circumstances – it may be time to consider retirement or partial to full liquidation. Retirement from farming can lead to a new phase of life which could result in new accomplishments. Lessons learned in farming can be a basis for new experiences. While some approach retirement or liquidation with apprehension and a sense of uncertainty, many later report a feeling of relief and freedom to move on to other opportunities and interests. Of course, it is important to consult with a range of advisors regarding tax consequences and obtain guidance on managing future life plans.

In summary, these tactics are offered to provide possible actions for farm families facing financial issues. Consider each action and move forward. Most importantly, avoid isolation at times of stress and work to surround yourself with people who can listen and perhaps provide encouragement or assistance.