Exploring the Benefits of Farm Management in Illinois

With more than 71,000 farm operations in Illinois that cover about 75% of the total land in the state, farmland and ag operations can make up a significant portion of investment assets in an individual's estate. If you want to pass your farm down to the next generation, it’s important to successfully manage your farm now and for future generations. From taxation issues to other aspects of estate planning, keep reading to learn what farm management is and how to maximize the benefits of your farm management strategy. 

What is farm management?

Simply put, farm management is the science of optimizing resources to keep your farm and household functioning at its most efficient level. By planning and engaging in strategic decision-making to take the steps needed to keep your farm running profitably, you can ensure it will still be a valuable asset for the next generation when it’s time for them to take over. Ideally, the descendant(s) interested in taking over the farm should become involved now so they can learn valuable aspects like:

• Farm record keeping 
• Tenant management services 
• How to negotiate a fair rent
• Review farm-related insurance options
• Pay expenses such as insurance premiums and real estate taxes
• On-site farm inspections and written reports
• Resource evaluation 
• Farm succession planning

Popular Crops and Livestock Commodities in Illinois

Corn is the top crop in Illinois, followed by soybeans and pork. Other popular crops in our state include wheat, beef cattle, dairy products, hay, fruits and vegetables, oats, and sheep. The types of crops and/or livestock you choose to raise on your farm will depend on your location in the state. For example, hilly regions in Northwest and South Illinois tend to be better suited for raising cattle than growing crops. 

When it comes to commodities, successful farm management consists of:

• Choosing the best crops to grow or livestock to raise for your particular farm size and land type.
• Supporting crop production or livestock growth with the right equipment and other measures.
• Taking advantage of our state’s central location in the country and excellent transportation system to quickly and efficiently sell your commodities, including exports.
• Planning and communicating with employees to ensure tasks are carried out correctly and efficiently on the ground.
• Using software to track revenue, expenses, and other important metrics.
• Managing soil fertility, weed control, fertilizer application rates, and drainage management plans.
• Responding to fluctuations in market conditions or severe weather events.

Farm Finances and Ag Loans

Managing the finances of a family farm can be complicated, especially if you’re one of the nearly half of Illinois farmers who hold another job outside of farming. From figuring out how much to spend on your family’s living expenses, to dealing with an unpredictable income, here’s what you need to know about farm management and finances:

• Cash Flow Statement: Lists all the money coming into and out of your farm. This can be used to calculate working capital, project future liquidity, or flag problems that need to be addressed now before they turn into emergencies.
• Net Worth Statement: Provides a big picture view of your farm’s financial soundness with a list of your farm’s assets (property, equipment, machinery, livestock, etc.) and liabilities (any debts or liens). Net worth = Value of assets minus liabilities. 
• Income Statement: All businesses, including farms (unless it’s a hobby farm supported by other income sources), need to be profitable to survive. An income statement (income minus expenses over one year) can be used to measure current profitability and project the next year’s profitability. 
• Building Equity: Equity comes from net income that isn’t needed for immediate expenses and can instead be used to generate future income. Building equity is an important consideration for any farmer looking to pass the farm to the next generation. 
• Ag Financing: Sometimes an ag loan or line of credit can be part of your financial plan by injecting working capital into your farm to help it run smoothly and grow. Learn more about Farm Real Estate Loans and Ag Lines of Credit from Town and Country Bank and Peoples Prosperity Bank. 

Transition and Estate Planning

To realize your dream of transitioning the family farm to the next generation, you need to create a concrete succession plan. Here are the most important steps:

• Assemble your farm management team. This may consist of family stakeholders from different generations, as well as outside professionals like attorneys, accountants, and the Trust and Investments Team at Town and Country Bank and Peoples Prosperity Bank. We partner with a local firm, Agrivest, Inc., that serves as the actual farm manager for our accounts (with Town and Country Bank as the acting Trustee) that hold farmland as an investment asset. 
• Conduct a power audit. The question of who controls decision-making can become a thorn in the side of your succession plan. Deal with it now by creating an arrangement in which the quality of decision-making matters more than decision-making power.
• Prepare for the “what ifs.” Your succession plan may unfold perfectly or an heir’s marriage could end, one heir may die before another, and so on. Put contingency plans in writing.
• Strive for fair compensation. Whether in cash or sweat equity, it’s important to compensate all individuals involved fairly each year.
• Conduct valuations of ownership interests. This protects you as the current owner, as well as the heirs of your farm business.
• Protect minority-stake owners. Consider certain measures to protect minority owners from the tyranny of majority rule. 
• Encourage phased retirement. Retirement compensation and other measures can be used to encourage senior family members to retire from running the farm so that the next generation can take over.  

Contact us today!

When you form a relationship with our knowledgeable Trust and Investments experts and our local partner Agrivest, Inc. for professional management of your farm and investment assets, you can rest assured your assets will be handled professionally. Leave your farm trust/estate administration to us so you can focus on what matters most by spending more time operating your farm and with your family. Meet our Trust and Investments team and contact us today!