How to Get out of the Farm Loan Cycle

Sep 16, 2020 | Farm Business

“Why do you cut the grass that way?” That’s what my neighbor asked me one day. He was curious as to my lawn method. I never really thought about it before, but answered, “Well, I guess because that’s the way I saw my dad do it.” I think I’ve caught many more habits than I’ve been taught over the years.

When it comes to the farm, it’s no different. Many of us farm a certain way because that’s the way we learned from our family, whether they be parents, grandparents, or aunts and uncles. When it comes to how we work with livestock or rotate our crops, that may be fine. But when it comes to money management, we may be selling ourselves short and missing out on better family security.

There are certain financial fundamentals that you can put into practice that will help you flip your formerly ever-present loan on its head and start saving money rather than living off the bank.


Now, we’re not asking you to become a fortune teller. We know that your farm income varies from year to year. But apart from unforeseen droughts, stocking infections, or blight, you can make a fairly educated estimate as to next year’s expenses with attention to the right details.

When you’ve harvested this year’s crop and tucked yourself into warming your toes by the fire for winter, it’s a great time to plan next year’s farm. Set the goals of what you want to accomplish. How much revenue are you shooting for? How many markets are you going to be involved with? How many CSA members will you be allowing in next year? Make a strong plan so that you both have something to shoot for and something to plan off of. 


Once you have estimated your income, look at your farm’s expenses. Determining your farm expenses can be the hardest part of working this out. You have to be really honest with yourself about what you are actually spending. You need to be sure to account for these categories:

  • Farm-related miles driven—That trip to the Co-op may seem like just a 15 minute trip to town, but the mileage (you use gasoline for that) can add up to quite a bit!
  • Feed—Ruminants can survive (and thrive) on grass alone, but most of us don’t have the land to provide for all their needs, which means we’re bringing in hay for the cold months; you also need to account for any grain you might be feeding, as well as any nutritional supplements.
  • Seed—If you’re a small farm, you might be saving seed; but many of us are buying it in each year. So how much will you need?
  • Fuel—Unfortunately, tractors don’t run on grass. So, how much fuel do you use?
  • New livestock—Are you wanting to scale up next year? Maybe a new animal venture?
  • Labor—Do you have full or part-time labor? Do you bring people on for those heavy weekends only?
  • Fertilizers—what are you putting on your crops to help them grow?
  • Marketing materials—what are you using to get your farm product to market? Websites, email campaign managers, flyers, business cards, pamphlets?
  • Equipment—Do you plan on replacing, fixing, or upgrading any of your current equipment?


Now that you have your sights locked on your farm income and expenses, it’s time to look at your family expenses. Look at past records and receipts to better estimate what you will spend in these categories:

  • Food—grocery store trips, online purchases, food-shares, wholesales
  • Utilities—electric, home phone, internet, mobile phones, gas, water
  • Education—books, supplies, tuition, room and board; or continuing education for you
  • Transportation—non-farm related travel can add up, too!
  • Health—insurance premiums, copayments, health-shares, medicines
  • Clothing—for you, your spouse, children
  • Giving—to church, those in need, other organizations to which you donate

Once you have an idea of what your family might need, you then should hone that list down and determine what things are truly essential—you may have to prioritize. You then should have a list with an amount that you MUST earn to live for the next year. The wishes that are past that must-have list can be prioritized separately so that you can decide what to use any extra income as you see fit.


So now you have an estimate of what you will earn over the next year, as well as estimates of both business and family expenses. So you have a good idea of your financial situation. As much as some of us might feel this way, it isn’t voodoo magic. It’s just numbers!

So the trick now is to be sure that when the crops come in, you set aside enough money to cover your expense estimates for the next 12 months. You might have grown up seeing small spending sprees each fall, but fight that urge! If you’ve done the hard work above of making honest estimates, then you can see a road map of how to get out from under the cliff of the loan-living system and on to the road of financial freedom!

We know that this shift in your way of thinking may feel daunting. Or maybe you don’t trust yourself to estimate your income or expenses rightly. Well, folks, that’s why we exist! The accountants at CRS CPA have been gifted with the ability to help you ask the hard financial questions and figure out a way forward. We thrive when we can help you, your family, your farm, and your community. Call us today if you need anything!

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