Pay down debt
In 2017, Statistics Canada reported farm debt outstanding rose to $102.3 billion in Canada, up 6.6% from the previous year. By lowering your debt levels now, you’ll be able to borrow more when big projects—or hard times—crop up. When it comes to cutting your debt, a simple rule is to tackle the high-interest stuff first—this means credit cards, trade accounts, and short-term loan facilities. If your term loan has prepayment penalties, compare those costs with the savings you'd make in interest. It's definitely best to be debt-free, but at some point, it can be smart to switch from paying down debt to investing. A good guideline is to put your money towards whatever's higher: debt interest rate or investment rate of return.
Build up working capital
If you're benefiting from current low rates and feeling comfortable with your debt situation, consider using your extra funds to build up working capital. By parking your money in a GIC or T-Bill account, you can earn interest and grow those savings in a secure place. If you're not sure when you'll need to access these funds, make sure you deposit them in an accessible account. A short-term GIC is one option; a cashable GIC is another. With a cashable GIC, you can withdraw your money any time—but the longer you keep it in, the more interest you earn. Another way to build working capital is to pay down your short-term credit (go back to that first point) and pre-buy inputs for the next crop year. The pre-buy discount is often more than the interest you’d earn in a short-term investment.
Reinvest in your operation
The third option is the most fun: spend the money! But don't just buy something because you can—do some research and spend it on land, equipment, or upgrades that will make your operation more efficient or more profitable.
And don't forget that you and your family are a big part of your operation. Invest in a weekend away to the mountains or new bikes for everyone—the time you spend together will allow you to refresh and refocus on your operation.
Whatever you decide to do with your hard-earned money, take time to think through the short-term and long-term effects. Ultimately, the financial decisions you make in the good years should help you through the challenging ones.
If you'd like a professional opinion, don't hesitate to reach out to an agriculture expert.
Our team at the Ag Centre of Expertise (ACE) is here to help connect you with the right know-how to better your business. Start a conversation at email@example.com, or check out our agribusiness learning section for more helpful advice.