Farmers Face Tough Times: How to Check Your Money Health

University of Illinois Extension Offers Financial Health Guidance

The Struggle

Farmers in the Midwest are experiencing financial difficulties, with tight money and low profits. To assist, the University of Illinois Extension is educating farmers on assessing their financial health using a balance sheet.

Understanding the Balance Sheet

A balance sheet displays:

• What the farm owns (assets)
• What the farm owes (liabilities)

Lenders' Traffic Light System

Lenders evaluate farms using a traffic light system:

• Green: Farm is strong
• Yellow: Proceed with caution
• Red: Trouble ahead

Key Metrics

1. Debt-to-Asset Ratio:
   • Over 60% may make it difficult to secure a loan.
   • Farmers may need to seek help from the Farm Service Agency.

2. Current Ratio:

   • Calculated as current assets ÷ current liabilities.
   • A ratio of 2.0 or more indicates good financial health.

3. Working Capital:

   • The extra money a farm has after paying expenses.
   • Lenders prefer a cushion of 30% to 40% to cover unexpected issues.

Importance of Honesty

• Lying on a balance sheet is a crime and can lead to jail time.
• Experts advise farmers to:
• Use real numbers.
• Keep balance sheets consistent.
• Keep lenders informed.

Additional Resources

For more help, farmers can contact:

• Kevin Brooks at the University of Illinois Extension.
• Visit their blog: Extension Farm Coach.