A participant on a recent webcast solicited a very tough question that is truly relevant given the current economy. “Can you help me understand my options if I get to the point where my business cannot make it? Bankruptcy is not something I want to do, and I am looking for options and programs that I can use.”
Wow, this is a tough question! I may not have all the options, but the following are some thoughts for consideration.
First and foremost, the producer needs to get the balance sheet, income statement, and cash flow statement in order. I suggest examining different price and cost scenarios compared to previous operating years. Can you cover your variable costs in the short run? The business may be in a situation where minimizing losses rather than maximizing profitability is the most realistic option.
Work with your agricultural lender, accountant, or the person responsible for the financials. Determine how much equity you are burning through by dividing the losses into your total net worth.
Consult with your agricultural lender to determine if a debt restructure is a possibility. Sometimes interest-only payments or a temporary principal deferment may be options with some lenders.
Next, work with your lender or an individual who is up to date on government assistance programs such as those available through the Small Business Administration (SBA), USDA and others. You will need financial documentation on how this black swan event has impacted your business such as lost revenue, payroll costs, and interest expense. This is where well-organized financial records are critical. Also, you may want to do an accrual analysis of income statements so that any changes in inventories, accounts receivable, and other adjustments reflect your situation and you can back it up with financial documentation.
Then, sit down and reevaluate your goals with your business partners and family. In these times, mother nature has given us a punch in the stomach which often makes us reconsider what is important in life.
If you are thinking about partial or total liquidation, work through the scenarios with your accountant to determine the tax implications.
Finally, if you are emotionally at the end of your rope, reach out for some assistance. Sometimes talking through your circumstances with someone who has had a similar experience can provide some balance and perspective in one's business, personal and family life.
Something to consider:
One valuable lesson learned during the 1980s farm crisis is to never equate your self-worth to your financial net worth because financial net worth can be very fleeting!