Recognizing Financial Stress


   Three years ago, I wrote an article about recognizing danger signals when marketing livestock. The former article focused on the signals that may be displayed by cattle buyers when they are experiencing financial problems, but yet they continue to purchase cattle.
   It now seems appropriate, given lower commodity and cattle prices, to look for signs of financial stress in an operation and discuss ways to overcome the stress. Recognizing signs of financial stress can be beneficial from an introspective standpoint as a producer makes management decisions to improve the situation. It can also be beneficial to recognize when others are succumbing to financial stress. Recognizing financial stress in and of itself is important to the business operation, but it may become more important when financial stress bleeds over into other aspects of life leading to depression, abusive behavior, and in the most severe cases suicidal thoughts.
   Most agricultural producers know when the finances get tight. However, many producers try to work harder to make up for that negative financial movement instead of going to the financial records to analyze the situation. Several factors can lead to financial stress including:
   1. Reduced cash flow,
   2. Reduced equity in the operation,
   3. Increased debt to asset ratio when debt is carried,
   4. Increased difficulty to obtain a larger line of credit, and 
   5. Decline in profits.
   Cash flow is generally one of the first signs of financial stress. The inability to pay immediate cash costs such as fuel, labor, feed, and interest on borrowed capital is a sign of cash flow problems. Subsequently, the inability to cash flow forces producers to change management practices. Thus, once a cash flow problem is recognized, producers are encouraged to:
   1. Communicate with the lender/banker,
   2. Evaluate ways to reduce costs without negatively impacting production,
   3. Evaluate cost efficiencies,
   4. Evaluate assets to determine if they can be liquidated, and
   5. Avoid living on depreciation of assets.
   Once financial stress is recognized, it is important to begin addressing the issue through some of these steps. The longer the financial problems are ignored, the more serious the situation. No one wants to deal with hard financial times, but even worse is having a living estate sell because one can no longer make a living farming. Thus, the first step is to identify there is a problem. Second, identify the problem areas. Third, develop a plan to overcome the problem, and fourth, implement the plan.
   Equally important as recognizing financial stress in one’s own operation is recognizing when a neighbor is under financial stress. Some signs of financial stress of a neighbor may include:
   1. Change in routines and decreased interest in activities,
   2. Reduced care of farm, animals, and decline in farm appearance,
   3. More frequent illness,
   4. Increased accidents on farm, and
   5. Signs of stress in children (
   It may be difficult to determine if someone else is under financial stress. However, even more difficult than identifying stress is determining how one can provide help or assistance to the one in distress. Agricultural producers are generally independent people that are not always accepting of assistance or help. These folks are even more closely guarded when it comes to finances. Producers facing serious financial stress can develop physical ailments such as headaches, ulcers, depression, memory loss, lack of concentration and many other ailments. Though the finances are important and friendships are not built overnight, it is integral to get many of these people help. Most of us are not mental health physicians or even know where to start to help folks suffering from these ailments, but it would be good to familiarize oneself with resources find someone else help. It would be very difficult for the financial crisis to be resolved without first resolving the other issues.
   This was not a very inspiring article, but it does address some serious situations that we should all consider. As commodity prices continue to decline so will profits which may turn into losses for the farming operation. Producers are encouraged to begin addressing the financial stresses now rather than later when it may be too late. ∆
   DR. ANDREW P. GRIFFITH: Assistant Professor, Department of Agricultural and Resource Economics, University of Tennessee
MidAmerica Farm Publications, Inc
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