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Integrating a Farm Business Loan into Your Business Plan

Learn how to create a profitable farm business plan amid uncontrollable factors.  

In an industry that faces so many unpredictable challenges—such as rising input costs, severe weather, and more—preparation is the key to success.  

Many farmers reassess their finances regularly to determine how they can optimize their operation to increase revenue and lower risk. Having a sound farm business plan that is updated regularly helps farmers do just that, while also helping identify if a farm business loan is needed to keep their operation thriving. 

Learn what’s helpful to include in a business plan and the role that farm business loans can have in your business strategy. 

How to Create a Profitable Farm Business Plan 

The purpose of a farm business plan is to create an effective strategy that sets your operation up for long-term success. Basic components of a strong business plan include the following: 

  • Mission statement; 
  • History of operation; 
  • Location/commodities; 
  • Acreage; 
  • Operational strengths and challenges; 
  • Production methods; 
  • Marketing strategy; 
  • Expenses; 
  • Management strategy; and 
  • Operational goals.  

When building out your business plan, completing the following steps can help lay out a comprehensive guide that sets you up for success in the long term. 

1. Analyze the Market 

It’s always a good idea to conduct market research before deciding what to grow next season. During times of fluctuating commodity prices, it can be challenging to predict which commodity would be the most profitable. Looking at recent and historical trends can help you make a more informed decision.  

Use the following questions as a starting point to determine which crops would be the most profitable for your operation:  

  • Is certain equipment required for planting or harvesting this particular crop? 
  • How much of the crop will you need to grow to make a profit? 
  • What price are other farmers selling the same crop for? 

This phase of planning is also ideal for seeking out new avenues for revenue. Are there places you can sell that you haven’t sold before? For example, selling directly to your community at a farmers market could help eliminate the middleman and generate higher net profit margins. 

Is there a product you can make with what you grow that would increase your profits with just a little more effort? Utilizing feedback from your suppliers, fellow farmers, and customers can help spark new (and profitable) ideas.  

2. Strategize Input Purchases 

Especially in a climate of rising production costs, it’s important to purchase strategically. Some ways to lower costs include purchasing inputs ahead of time and shopping around for the cheapest price. Consider generic alternatives to chemical inputs and ways that you can repair equipment instead of replacing it. 

3. Identify a Farm Labor Plan 

Farm labor costs and labor shortages continue to challenge farmers across the nation. In 2022, farm labor costs are expected to comprise 9.7 percent of total farm input costs.  

Many farmers utilize the H-2A program for foreign agricultural workers, so determining whether to use this program is important. Laying out a strategy to both recruit and retain workers will help you implement a plan to make sure you have the labor to complete essential jobs on your operation.  

4. Monitor Past Performance  

Once you’ve identified the opportunities for growth, examining your operational performance in different areas can help you pinpoint a plan of action as you move forward.   

Here are examples of key performance indicators (KPIs) that measure operational health

  • Operating profit margin; 
  • Asset turnover ratio; 
  • Return on assets; 
  • Return on equity; and 
  • Sustainable growth rate. 

AgAmerica’s Financial Health Check tool is another way to see where improvements could be made. 

Financial Health Calculator

Understanding your operational strengths and weaknesses will help you mold a business plan that takes both into account. 

5. Consider Securing a Farm Business Loan 

With interest rates expected to increase further in 2022, it may be prudent to lock in rates now before they increase even more. In 2022, interest rates are expected to comprise six percent of total production expenses. To curb inflation, the Federal Reserve is raising rates and has moved towards tighter policy with the first rate increase of .25 percent in March 2022 and another .50 percent increase in May. In both June and July, there were two increases of .75 percent. Experts predict at least one more rate hike by the end of the year. 

Before taking out a loan, determine whether a fixed or variable interest rate loan is better for your operation because both have pros and cons. AgAmerica offers both fixed- and variable-rate loan options with terms up to 30 years.  

Amid rising production expenses, securing working capital can help you increase your financial liquidity so you can continue implementing your business plan and building a resilient operation. If you have existing financing, consider refinancing to reduce your payments and/or interest rate.  

Increase Working Capital with a Farm Business Loan from AgAmerica 

After determining your operational strengths, weaknesses, and goals, it’s wise to identify what kind of financing could help you level up your operation and sustain its growth during times of volatility. AgAmerica is here to provide both financial support and counsel as your farm business plan evolves. 

Learn more about how you can strengthen your farm operation with a farm business loan from AgAmerica. 

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AgAmerica Lending® LLC is a licensed mortgage lender. NMLS ID# 372267

Copyright AgAmerica® LLC 2022. All Rights Reserved.

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AgAmerica - An Equal Opportunity Lender

AgAmerica Lending® LLC is a licensed mortgage lender. NMLS ID# 372267

Copyright AgAmerica® LLC 2022. All Rights Reserved.