Some areas of Ohio are suffering from a lack of rainfall and may experience less than average yields, thus lowering income. Operating debt will increase and plastic use (credit cards) may become a far too easy short-term solution. These options have lingering effects on cash flows, causes financial stress for years to come, and limits flexibility for future management decisions. According to David M. Kohl , Virginia Tech, “if the total balances on your credit cards exceed 15 percent of your gross income, you are in the danger zone. Five to 15 percent represents caution, and less than 5 percent would place you in the safe category.”
Most people would rather not discuss family budgets, much less to put a budget in writing. However, it may become an essential exercise to prevent substantial deterioration to a families financial health. Some folks in Texas have a useful fact sheet about farm family budgeting and establishing a sound financial plan:
http://www.agrisk.umn.edu/Library/Display.asp?Id=55&F=1&P=Table&CMD=Count&LIB=Main.
How much debt can a farm carry? A Kansas State University, two page fact sheet is easy to read and may be found at: http://www.agrisk.umn.edu/Library/Display.asp?Id=2181&F=1&P=Table&CMD=Count&LIB=Main .
If you find yourself, “In Over Your Head,” check out this OSU fact sheet: http://ohioline.osu.edu/b891/index .html.
Illinois has a check list for a farmer obtaining a loan and may be found at: http://www.farmdoc.uiuc.edu/finance/FarmersGuidetoCreditCheckList.htm . A point to remember, lenders do not like surprises. Communicate with your lenders about any anticipated repayment problems or additional credit requirements.
Income tax management strategies include net operating loss carry back to get a refund of federal income tax (but not self-employment tax). Also, file amended state and local returns. Do an income tax estimate this fall so there will be time to make adjustments to income or expenses before the first of the year. If the estimate looks to be at break-even or at a loss, be sure to generate sales for enough taxable income to use personal exemptions and the standard or itemized deductions.
The past couple of years have been generally profitable and income tax law changes have encouraged machinery and other asset purchases (Section 179 Expensing/Bonus Depreciation). However, if these assets were financed to take advantage of low interest rates and cash reserves were not maintained, this years payments may be hard to handle. For farmers needing assistance in developing cash flow alternatives, there is a team of OSU Extension Educators available to use the computer program FINPACK to evaluate options. Contact any county Extension office for information.