Evaluate Your Financial Picture Before Seeking Financing

Before you start operating your farm or ranch, it’s very important to have a business plan. Sit down and think about what you want and how you will achieve it. 

After following the steps below, you will:

  • be prepared to run a viable business;
  • know whether you need additional capital;
  • be prepared to seek a loan or other money if you need it.

Set your own goals

Set long-term goals. Think about what you want your quality of life on the farm to be like, and think about what kind of land and production will get you there. Consider:

  • annual income
  • enterprises
  • methods of production
  • quantity and quality of production

Set short term objectives that will move you toward your long-term goals.

Make a budget

Farm expenses: How much will it cost to produce your crops?
Farm income: What will you make from the sale of your crops?
Other income and expenses: What other costs and earnings do you have? Consider off-farm jobs, car payments, credit card payments, etc
Living expenses: How much do you project you’ll need?
Use a template: Check out IRS Schedule F for a template to start from, or use this detailed budget template for additional instructions and data analysis (warning - it’s complicated, but very helpful). Additionally, sample budgets for many crops can be found within publications at ATTRA and MAC. These usually exclude income estimates since markets vary widely by date and location

Run the cash flow

A basic cash flow analysis is a month-by-month list of all the money that comes into and out of the farm, with a calculation of total ince and expenses. By looking at the dollars remaining or short each month, you can tell if you need outside cash (income, a loan, or alternative options) to finance the operation and living expenses. 

  • Create: Make your projected month-by-month cash flow analysis.
  • Think of the timing: Not all of your costs and incomes will come at the same times. For example, crop planting expenses might occur April-June, harvest costs may be in September and October, and crop income would come in October and November. Will there be enough money in the bank from the income sources to make payments when they come due?
  • Consider all enterprises: How will one enterprise support or feed off another? What happens if something goes wrong in one or more enterprises?
  • Test for trouble: Try out some possible scenarios to adjust for a potential 10 percent sale price decline or 10 percent loss of production

Consider your plan

Farming experience: What knowledge and experience do you have that will allow you to do what you’re planning? What do you still need to learn?
Rental arrangements: Will there be rental arrangements used? How will they support your goals? 
Down payment: Do you have savings or other resources to commit or place at risk to achieve your goals? 
Previous Ownership/Management: Have you previously owned or managed significant property that demonstrates your ability to undertake the proposed responsibility of owning and managing your own farm assets now? 
Improved vs. unimproved real estate: Is it cost effective for you to take unimproved real estate and make improvements yourself? Do you have the skills, financing or time to build facilities? 
Collateral thinking: What do you have to pledge as security to a lender in exchange for a loan?
Emergency situations: What assets do you have that could be traded or sold for cash if something goes desperately wrong?

Do you need additional capital?

If you have made your business plan and determined you need additional money to get started, you have many options:

  • Use savings
  • Borrow from family or a business partner
  • Consider a CSA model
  • Seek other options
  • Explore grant opportunities (though there are very few available for beginning farmers)

If you’re still looking for money, you can consider a loan. You should use your budget, cash flow analysis, and business plan to show a lender how your business works. 

Learn more about loan sources, grant opportunities, and other financing options here.

Additional information on making a business plan is available here.

Other resource:

The Farmers’ Guide to Agricultural Credit, an online description of what lenders look for and how to prepare for borrowing money, available online or for $10 from RAFI-USA, 919.542.1396. 
AgPlan: A Free Financial Planning Tool from the University of Minnesota

Contact Wyatt Fraas, wyattf@cfra.org or 402.254.6893 for more information on Center for Rural Affairs' beginning farmer programs.