Agricultural debt - Steps to improve the financial position of a farming business

Measured against generally accepted norms, it is gravitating to the higher side. It should be seen against the background of a slowing down (or even a decrease) in land prices, stricter monetary policy and political uncertainty. Every farming operation has a unique set of circumstances and it is therefore necessary to determine the impact thereof on the financial position as accurately as possible, rather than to generalise.


  1. Do a thorough analysis of the financial position of the total farming business (all entities). Trend analyses of critical financial and efficiency ratios from comparative balance sheet and income statements over time and cash flow budgets are essential.
  2. The more timeous, comprehensive and reliable the management information, the faster and more acccurate the analysis, diagnosis and implementation of proactive or affirmative measures will be.
  3. Senwes Credit’s Agri-economic Services has an E-Bureau service, the objective of which is to do such analyses for your farming operations and to monitor it on an annual basis.
  4. Do a strategic analysis (SWOTanalysis) and revise short-term goals and long-term goals where necessary.
  5. Proactive actions by making use of scenario planning will enable you to have a sensible discussion with the financiers of your farming operations. Problems can be identified and addressed collectively in this manner.
  6. Determine from the above analysis whether problems are of a short- or long-term nature, since it will require different actions and solutions.


Short-term financial problems (usually a lack of liquidity/cash flow) which are not the result of poor management (unforeseen setback), can easily be rectified:

  1. Obtain bridging finance.
  2. Negotiate temporary moratorium on payment of premiums.
  3. Sell unproductive farming assets - streamline balance sheet. Productive assets should make up approximately 75% of total assets
  4. Additional animal/grain sales - building a stud or storing grain in the silo during times of serious cash flow pressure seldom has the desired outcome.
  5. Application of financial reserves - liquidation of short-term investments, surrendering of policies and borrowing against endowment policies as a last resort.
  6. Negotiate extended payment plans for term debt and asset finance.
  7. Consolidation of accumulated short-term debt, on condition that the farming business will, under normal circumstances, still be able to service consolidation payments. Where O/R hard core is consolidated, the limit should be decreased accordingly.
  8. Stock management – limit obsolete stock to a minimum. Discount on early payments must exceed the additional finance obtained in order to justify it. Make sure that traditional February tax purchases bring the required cash flow benefits.
  9. Make sure that finance terms align with the useful life of the asset.
  10. Effective management and recovery of debtors. Outstanding debtors of 60 days and more should be addressed as a matter of urgency.
  11. Irrespective of the option(s) being considered, it is essential to test the desirability (practical viability and feasibility) thereof on the basis of a comprehensive 12 – 24-month cash flow budget. Senwes Agrieconomic Services can assist you in this regard.

In Part 2 in the next edition of Senwes Scenario we will be looking at possible options to consider which will have a longer term impact on the financial position and structure of the farming business.

For any enquiries please contact: Johan du Toit Manager Senwes Agricultural Economic Services 018 464 7543