Developing a farm/ranch business plan Debt Repayment

U.S. National Debt Clock

Debt Debt is that which is owed; usually referencing assets owed. In the case of assets, debt is a means of using future purchasing power in the present before income has been earned. A debt is created when a creditor agrees to loan a sum of assets to a debtor. Debt is usually granted with expected repayment; in most cases, plus interest.

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Management of Debt Crucial for maintaining financial liquidity and avoiding undue risk.

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Borrowing For most farmers, borrowing is essential and provides a major source of funds for operating the business. Can work to your advantage at times Should be avoided at other times

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Financial Leverage Expressed as a ratio of debt to net worth. –Borrowing (Increasing leverage) can be effective during periods when: Earnings are relatively good Interest rates are low Rate of inflation is high –Under opposite conditions, it’s best to wait for a more opportune time to buy land, expand an enterprise, or make other capital expenditures

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Leverage The use of borrowed capital to increase the potential return of an investment. The amount of debt used to finance a businesses assets. A business with significantly more debt than equity is considered to be highly leveraged.

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The End