Farmers use their balancing skills every day – whether they’re climbing vertical ladders to close the top of the grain bin or wiping soybean dust off the combine windshield. While this dexterity is helpful while working outside, farmers must also be flexible in the office as they search for the financial balance necessary for business success.

As some farm families find themselves with depleted working capital, they may consider restructuring debt to increase liquidity. But before approaching a farm lender, they must recognize any underlying issues that got them off-center and create an action plan so restructuring doesn’t cause the farm further financial stress.

When evaluating the farm’s financial statement before restructuring debt, farmers should consider these tactics on their path to finding operational balance.

1. Evaluate debt and term levels – overleveraging shorter-term assets and/or overly aggressive amortizations on term debts may be causing the cash flow issue
2. Cut appropriate expenses before rebalancing ledgers – critically assess all farm expenditures, including family living expenses and non-income producing assets
3. Understand current working capital levels – determine if cash reserves will support a new debt structure for the size of your farm business or if costs need to be reduced
4. Review risk management practices – use a consistent marketing strategy and annually evaluate crop insurance options
5. Keep thorough records – reliable year-end financial and accrual income statements are key to sound decision making

After examining these strategies, farmers are ready to talk with lenders about restructuring options. The conversation may include the following considerations:

1. Being mindful of the asset and liability balance when financing assets to maintain adequate cash flow and build liquidity to withstand economic cycles
2. Aligning the loan term to the life of the asset corresponding with the loan
3. Considering locking in a fixed interest rate for the life of the loan to gain a better understanding of the long-term debt service demands on your family farm
4. Understanding the additional cost of longer-term financing

Restructuring debt may not be a solution for all farm businesses, but the benefit of additional working capital may be worth the extra cost if care is taken in finding the optimal financial balance the farm business needs to continue today and tomorrow.