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When looking at your farm’s finances, it is important to face critical business decisions head on before you discover there is not enough money to cover operating expenses. You need to determine which crops to grow, or which livestock enterprises to enter. You need to have a plan to market your crops. You need to have the right risk management tools in place, as well as sufficient insurance coverage, to protect your farm.

Beyond that, you also need to decide whether or not you can afford capital expenditures. Evaluate the pros and cons of purchasing versus leasing farm equipment. If you do not have enough capital to make a purchase, you will need to find farm financing.

Making these decisions will determine the future financial health of your farm. These decisions are never easy, and should only be made after taking a close look at your current circumstances and data-based financial projections.

We recently gave a presentation on Farm Financial Awareness at the North Carolina Farm Bureau’s “Helping Farm Families Through Hard Times” workshop, and we wanted to share information from the workshop with you here. In this post, you will learn what tools and financial models we recommend to our farm clients to fully understand your farm’s finances.

Create A Balance Sheet and Projections For Your Farm Finances

The first step toward farm financial awareness is creating a balance sheet of everything you own and everything you owe. You’ll want to create a spreadsheet listing out all of your farm’s debts and all of your farm’s assets. Accuracy and completeness are key. Any debts left unaccounted for could create further trouble down the road.

From there, you will want to create projections of future earnings and expenditures. Projections should be complete, accurate, and based on financial data from previous years. Look at your earnings from the last few years and develop a budget for expenditures.

When you are done,  your farm’s balance sheet and projections should indicate both your current and future financial situation. These tools may indicate whether your farm is profitable or operating at a loss. It can also provide a framework for the future of your farm’s operations, and reveal new opportunities to increase revenue or reduce expenses.

Check Your Farm Finance’s Vital Signs

In addition to balance sheets and projections, vital signs are also critical in understanding your farm’s finances. You want to take a look at the big picture. How healthy is your farm operation? How sustainable is your farm?

First look at liquidity. Is there sufficient cash available to you to pay your farm’s bills without disrupting the business? To determine whether or not you do, you need to know how much working capital your farm currently has on hand. To do this, simply divide your current assets by your current liabilities. A good working capital ratio is anywhere between 1.2 and 2.0.

Let’s take a look at an example:

Current Assets = $27,572

Current Liabilities = $19,964

Asset/Liabilities = $27,572/$19,964

Current Working Capital Ratio = 1.38

Current Working Capital = $7,608

Another vital sign you should pay attention to is your farm’s debt to asset ratio. In other words, what is the strength of your farm’s assets against its debt? This information can be found on your balance sheet. A good debt to asset ratio will tell you whether or not your farm’s operation is strong enough to weather a bad year.

Here is an example of how to calculate your farm’s debt to asset ratio:

Total Liabilities = $454,932

Total Business Assets = $622,103

Debt/Assets = $454,932/$622,103

Debt/Asset Ratio  = 73%

The final vital sign you should pay attention to is profitability and productivity. Look at your farm’s total revenue against crop expenses. Account for both fixed and variable expenses, and break it down by unit, acre and farm.

As you look at vital signs for your farm’s financial health, keep in mind the risks associated with operating the farm. Ask yourself, what would happen if interest rates increased? What if I experience a total crop loss? What if I get sick? Look for vulnerabilities and weaknesses in your farm and create a strategy to proactively deal with worst case scenarios.

Be Proactive And Talk To Your Lenders and Farm Attorney

If you realize that your farm’s finances are not in good health, you should take steps to improve your situation immediately. Talk to your lenders, especially when you realize you may not be able to make a payment. And, if you have questions about how to deal with debt, you can speak with a farm bankruptcy attorney. You may not need bankruptcy services yet, but an attorney experienced with helping farms through tough financial situations can help you avoid defaulting on your loans, missing payments and leaving money on the table.

For more information, you can call our office at 919-934-7235 or email david@mills-law.com.

 

Farm Financial Resources:

Balance Sheet Tool:

https://www.ces.ncsu.edu/wp-content/uploads/2015/01/Farm-Balance-Sheet-Tool-1.xlsx

Cash Flow Tool:

https://www.ces.ncsu.edu/wp-content/uploads/2015/01/NCFS-Cash-Flow-Tool.xlsx

Farm Enterprise Budgets:

https://cals.ncsu.edu/are-extension/business-planning-and-operations/enterprise-budgets

Your divorce has been finalized, marital assets have been divided and any remaining marital debt allocated to the respective spouse.  In a perfect world, you could shut the door on that chapter of your life and move on.  BUT life isn’t perfect and the assignment of debt repayment to your ex-spouse does not mean that you are free from owing the debt.

Debt Repayment

Your divorce settlement terms are between you and your spouse.  The settlement may have assigned the repayment of the debt to one spouse but that did not change the creditor’s right to collect a joint debt.  The creditor may address their collection efforts to both debtors until the debt is repaid, refinanced or resolved.

Credit Score

Marital debt will remain on credit reports for both spouses until the debt is resolved.  Late payments by the spouse that is assigned debt responsibility will be reflected on the credit reports of both individuals.

Are you struggling to pay creditors…tired of creditors calling…worried about your credit score?  Contact Mills Law to discuss your situation with one of our attorneys: (919)934-7235

Bankruptcy gives many people the opportunity for a financial fresh start.   When you work with us, we review your financial situation, look at the options that are available and determine the course of action that best addresses your financial situation.  For many people that is filing Chapter 7, for others it may be Chapter 13 and finally some people are not well served by the bankruptcy process.

After your free initial consultation you will be required to take the means test.  The Means Test is a tool that the Bankruptcy court uses to determine if you qualify to file Chapter 7 Bankruptcy.   This test uses a complex formula to compare your income, expenses and family size to the median income of similar North Carolina households.

For income levels below state median you will qualify for Chapter 7.  Even if your income is above the state median income you may still qualify for Chapter 7 after a detailed analysis of your financial situation.  For people with income above the state median income Chapter 13 may be an option to provide considerable debt relief.

Call our office to schedule your free Consumer Bankruptcy consultation.

David F. Mills of Mills Law Firm recently spoke on “Current Issues in Agriculture” at the Eastern Bankruptcy Institute’s (EBI) 2017 Seminar in Myrtle Beach, South Carolina. 

The EBI provides continuing legal education for attorneys and paralegals, and provides information and resources on the current state of the law in the bankruptcy and business law fields. 

Mills represents clients in a wide range of bankruptcy matters, including assisting North Carolina farmers with Chapter 12 bankruptcy and related claims.  In addition to his bankruptcy practice, Mills serves as head of the Stubbs Bankruptcy Clinic at Campbell Law School in Raleigh, North Carolina.

When preparing for you free consultation with Mr. Mills, please bring the following documents to help us better understand your picture. If you can’t find all of these items, don’t let that discourage you from coming in. Often we can provide guidance on where this information can be obtained:

  • The most recent bill or statement from each creditor
  • All letters from collection agencies or lawyers
  • Any papers relating to a lawsuit
  • The past 6 months of paystubs
  • The past 2 years of tax returns
  • State ID (such as a driver’s license) and your Social Security card
  • A list of real estate and automobiles you own

Although this is not a complete list of what’s needed should you choose to pursue bankruptcy, it serves as a starting place to help us make an initial analysis of how we can provide the help you need.

Three major benefits come from bankruptcy. The first is the automatic stay, a federal court order that takes effect as soon as your bankruptcy case is filed. It prohibits your creditors (the people you owe money to) from calling or harassing you, suing you, repossessing anything or foreclosing on your home, or any other actions to collect a debt from you. They have to leave you alone.

The second benefit is the ability to claim exemptions. Exemptions represent certain types of property you can keep even though you’ve filed bankruptcy. These exemptions, in most cases, cover all the assets you own, meaning that in most cases you won’t lose any assets.

The third benefit is the discharge itself—the forgiveness of debt that bankruptcy provides to honest debtors—those that fully, accurately, and honestly disclose everything they own and everything they owe to the Bankruptcy Court.

Although these are the Big Three benefits that come from bankruptcy, there are many others—peace of mind, the ability to sleep at night, improvement of credit scores, the freedom to answer the telephone without fear that it’s another debt collector. Other, more technical benefits may also be obtained from a bankruptcy filing, like voiding certain kinds of judgments and liens against your property, and Mills Law knows how to use them to obtain the fresh start you need.

A bankruptcy discharge gets rid of most typical debts, including:

  • Credit card bills
  • Medical bills
  • Personal loans
  • Some taxes
  • Lawsuits
  • Business debt
  • Deficiency claims (debts left over after repossession or sale of a car, home, or other property)

Occasions also exist when bankruptcy will allow you to reduce the amount you owe on your cars and other personal property.

This is not a complete list. We can help identify those debts that will be extinguished by a bankruptcy discharge.

Bankruptcy will not get rid of all types of debt.  These debts are referred to as non-dischargeable debts because you will continue to owe them after your bankruptcy case is over.

Some debts that will survive the bankruptcy include:

  • Most taxes
  • Most student loans
  • Child support and alimony
  • Debts arising from fraud or shortly before you file bankruptcy

This is not a complete list. We will help identify which debts may be forgiven, and those that will remain, based on your personal case.

David F. Mills of Mills Law Firm is now serving as head of the Stubbs Bankruptcy Clinic for Campbell Law School.  Mills’s term began December 1, 2014 and continues to this day.

The Stubbs Bankruptcy Clinic is charged with providing students a unique experience in bankruptcy law as it tackles cases referred by the U.S. Bankruptcy Court and Legal Aid of North Carolina.

Mills, a double Camel, received both his undergraduate and graduate degree from Campbell University. He has been active with the school for years. He represents clients in a wide range of bankruptcy matters, including assisting North Carolina farmers with Chapter 12 bankruptcy and related claims.

For more information, visit the Campbell Law News website.

The first step toward your fresh start is to call Mills Law and schedule your free consultation. You’ll need to bring certain information (see “What to Bring to the First Meeting”). During this appointment you’ll meet with David Mills to talk about your concerns, goals, and the details of your financial situation. Based on your assets, liabilities, income and your objectives, we’ll help you decide whether bankruptcy is right for you and, if so, what type (or chapter) of bankruptcy will most help you.

At this point you’ll receive a list of additional information to gather and an outline of the steps needed in order to prepare for bankruptcy filing. We’ll also discuss the cost of the bankruptcy case so that you can make an informed decision.

Once you’ve provided all the needed information we can prepare the required documents for Bankruptcy Court, which you will carefully review to make sure everything is accurate, truthful, and complete. Once you’ve finished this step, your case gets filed.

At that point, the automatic stay stops your creditors from calling, writing, or trying to collect from you. The court appoints a trustee to oversee your case and sets up a meeting between you and this trustee. Rest assured you won’t be alone as Mills Law will be with you each and every step along the way. Mr. Mills will attend this meeting where the trustee will ask you a series of questions to make sure the information you’ve provided is honest and accurate.

Once you complete the requirements of the Bankruptcy Court, you’ll receive the discharge, which is the forgiveness of debt, and your case will soon be closed allowing your life to move forward with a clean slate.


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