Accurate numbers help farmers develop future plans

ROCKFORD, Ill. — As farmers develop a financial plan for their operation it is important they determine where they are, where they want to go and accurate numbers about their business.

“Think about the things that could happen, good or bad, to be prepared for the what ifs that eventually will come up,” said John Gasner, Compeer Financial manager credit risk.

“We encourage farmers to do enterprise analysis, industry ratios and benchmarking,” said Gasner during a presentation at the 2025 GroundBreakers Conference, hosted by Compeer Financial.

“By definition, with benchmarking, half the people are below average,” he said. “But maybe you are OK with being at the bottom 50% somewhere because you are in the top 90% somewhere else.”

When analyzing a loan application, Compeer uses the five C’s of credit — character, capital, capacity, collateral and conditions, said Michele Gernetzke, Compeer Financial senior credit officer, who also spoke during the event.

“Character is assessing the borrower’s reputation and track record with repaying debts,” she said. “We’re going to look at your credit history, how you are thinking about protecting your operation and your financial management such as preparing a year-end balance sheet and if you know your cost of production.”

Capital refers to the funds that are invested into a business.

“This represents the difference between what you own and what you owe,” Gernetzke said. “We’re talking about looking at your balance sheet which provides a snapshot of your financial position.”

Capacity indicates if a farmer will be able to pay a loan back with the cash flow of the operation.

“We are going to access if you can cover all your expenses, debt obligations and add on additional debt,” Gernetzke said. “At Compeer, we like to see clients meet their obligations at least one time plus a 15% margin.”

Collateral is the assets that are offered to secure the loan such as a tractor, livestock or real estate.

“The collateral you’re going to need to secure the loan will depend on what type of loan you have,” the senior credit officer said.

“Conditions are the specific terms of your loan such as how long to repay it and the interest rate,” Gernetzke said.

“My bonus C of credit is working capital which is the difference between current assets and current liabilities, the obligations that are due in the next 12 months,” she said. “It includes assets that you can convert to cash quickly minus liabilities such as unpaid bills, real estate taxes and operating loans.”

The working capital is money necessary for the business to continue during low periods.

“In general, our recommendation is to carry 15% of your annual revenue in working capital,” Gernetzke said.

Gasner identified nine cash flow drivers for a farming operation — commodity prices, yields, new income sources, land rent, living draws, other operating expenses, income taxes, capital spending and finance structure.

“The only thing we can do is restructure your loans,” he said. “Of the eight other ones, you have the ability to control two and a half of them and the rest you can influence, but you cannot control them.”

New income sources and living draws are the two that farmers have direct control over.

“I give you half on capital spending because you can control it if it’s out of control,” Gasner said. “But eventually you’re going to need to replace the skid steer — there’s only so many things you can put off.”

Off-farm income is the fastest way to input money into an operation and it can bridge the gap when the farm economy is struggling.

“It is not consequence free, so I don’t make this recommendation lightly,” Gasner said. “Maybe it is not right for your operation.”

However, some people wait too long to secure off-farm income.

“If you wait until you’re 60 days past due, you may have waited a little too long,” Gasner said. “Don’t think it’s a failure to explore off-farm income — it is part of a successful business plan.”

He encourages farmers to develop a family living budget.

“I’m not telling you not to spend money, but you have to know how much you’re spending,” he said. “Be aware of lifestyle creep — nice things lead to nice things.”

Debt is a tool, Gasner said.

“We want you to take on as much debt as you are comfortable with and we are comfortable with,” he said. “Debt can be incredibly helpful or it could be incredibly dangerous, so it needs to be used appropriately.”

Farmers should talk to others in the business and learn from them.

“You have to enjoy what you’re doing or you will not be successful,” Gasner said. “You work way too hard to not enjoy what you’re doing.”