Whether you’re a livestock or a crop producer you’re going through a rough ride right now with sky-high input costs and low commodity prices – what a combination. According to US institutions this is the worst time for family farms since the 1980s, not that we necessarily experienced that back then because we had the Control Boards to cushion us.

Looking forward to 2010 most of us will need to evaluate our options. We need to do this systematically to ensure a brighter future.

So what process should we follow?

Firstly you need to look at where you are right now, financially speaking. In order to do this you’ll need to look at your balance sheets from the past few years. This will help you identify trends, determine your solvency, and possibly to make decisions about restructuring. In discussions with various banks when presenting the business plans with my clients its become clear that the banks are intent on making a critical change in the way they do business. The era of the sole farm proprietor is coming to an end and the banks are most likely going to force farmers trading in their own names to form companies in order to continue to do business with the banks.

You also need to look at your income and expense records for the past few years to identify trends there as well. You may know whether you’re profitable but you need to know your production costs and how much your profitability is affected by interest charges. You’ll also be able to see the effects of loan repayment (capital and interest) on your cash flow.

We all know that “cash is king” and that cash flow (and not profitability) is what determines whether we can stay in business or not. So the critical portion of this analysis is to review cash flows. The people I’ve been working with have had a common problem that they’re facing – that’s an imbalance in the type of debt that they currently have.

Normally the cash crisis builds “invisibly” because we’re able to keep going for a while before the problem becomes large. Suddenly at the end of the season we just don’t have the cash to repay the capital on the production loan, or our creditors just balloon to crisis levels.

Start by looking at what is most urgent. Repayment deadlines, foreclosures, judgements, and other legal actions need immediate attention. They’re not going to go away anytime soon.

You also need to take a look at your assets, and be ruthless in deciding whether you have to keep them or whether they should be sold to help solve the problem.

You need to review all the options open to you. Start by drawing up some long term personal goals for yourself and you family. Once you’ve got these goals down on paper you can start plotting your way to achieving them.

Your range of options extends from doing nothing to selling your farming business, and everything in between. All the options possible will have consequences ranging from irate creditors if you do nothing to family and tax issues if you sell of the farm. In between these extremes there are options such as improving productivity, growing the operation, limited sale of assets, refinancing existing loans, taking in new partners, or adding non-farm income that need to be considered.

In order to consider your options you’ll probably need to develop cash flow projections for each scenario being considered as well as evaluate how each scenario will impact you and your family in the future.

Above all, if you’re facing a problem with creditors making demands, keep everyone involved informed of what’s going on. The only thing worse than someone owing you money, is not knowing what plans are being made to get your money back to you.