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How to make big financial decisions

Data, alternatives and partner support are all key.

Darren Frye

June 22, 2020

3 Min Read
SARINYAPINNGAM/ThinkstockPhotos

One of the responsibilities of the farm’s leader is deciding how financial resources are going to be used in the operation. Often, this is no easy task. Even with the help of strong, solid budgets and financial plans, some major, unexpected decisions will come up about how to allocate money.

These decisions can be stressful for farm leaders, especially when uncertainty is high and margins are tight. It can seem like one wrong decision could send the operation into financial trouble – and no leader who cares about the farm and their legacy wants that to happen.

The pressure around big decisions like buying land or equipment and making marketing decisions is real, but there are a few things leaders can do to help remove some of the stress from major financial decision-making.

Take three steps

  1. Get the right numbers in place. As a farm leader, you know how important it is to have the right data and information at your fingertips. Without good data, it would be tough to make the best possible decisions for your operation. For large purchases and other big financial decisions, it’s key to have accurate, up-to-date numbers that show you the full picture of your operation’s financials. Run feasibility studies and scenarios to get a good understanding of how a certain decision will impact your overall operation. This helps you get a clearer future view of how the operation will be affected if you make a particular decision.

  2. Look at alternatives. When there’s a big financial decision to be made, make sure you know your options first. The first idea that comes up might not necessarily be the best one or the right one. Also make sure to consider what things would look like if you chose to do nothing or to delay a decision. Learn what the impact of those choices would be. Taking time to do this can help remove some of the emotion from the process and help you think more broadly about the full array of options. It can lead to more creativity and better solutions.

  3. Get a partner for another perspective. Carrying the responsibility for a major financial decision on the farm can be a heavy load on your shoulders. It’s vital to have a team or someone you trust to talk through options, bounce ideas off of and get another perspective as you work to make the best decisions. At times when you might be drawn toward making a decision based mainly on emotion, they can help you return to your operation’s numbers and talk through the options and alternatives that are available. It can be especially helpful to work with a partner from outside of your operation because they can bring a more neutral, third-party perspective to the table.

What process do you use when making major financial decisions for your operation? You may want to talk with one of our market advisors for more ideas on how to run farm decisions by the numbers and help take some of the stress out of decision-making.

The opinions of the author are not necessarily those of Farm Futures or Farm Progress. 

About the Author(s)

Darren Frye

CEO, Water Street Solutions

Darren Frye grew up on an innovative, integrated Illinois farm. He began trading commodities in 1982 and started his first business in 1987, specializing in fertilizer distribution and crop consulting. In 1994 he started a consulting business, Water Street Solutions to help Midwest farmers become more successful through financial analysis, crop insurance, marketing consulting and legacy planning. The mission of Finance First is to get you to look at spreadsheets and see opportunity, to see your business for what it can be, and to help you build your agricultural legacy.

Visit Water Street Solutions

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