It’s important to understand the difference between income and wealth. Income is the flow of money you receive through business and wealth is what you have saved and invested. For farmers, their wealth and income are intermingled. In many (if not most) cases, the money you receive through your business is invested right back into your property and non-liquid assets.
What are your non-liquid assets?
Non-liquid assets are possessions you own that cannot be converted into cash quickly. For farmers, those examples would include the following:
Tractors
Combines
Trailers and trucks
Buildings and property (housing, barns, silos etc.)
Livestock
Crops
Other work equipment
All of these and other possessions you’ve invested in for your business are considered non-liquid assets. It’s very important that during the transferring or selling process of your farm that these assets are not overlooked. Without a proper plan in place to sell your equipment everything may just go to auction and be sold to the highest bidder which could be thousands less than its true value.
How will these assets help with your financial future?
Most people have 75% of their wealth in non-liquid assets (which is a lot!). This is why when you’re looking at retirement, you’re carefully evaluating how these assets will impact you. Have you thought about how the sale of your assets will impact your retirement? For example, let’s say you plan on transferring your business down to your child. Are you completely transferring everything or will you be selling certain assets in order to put money aside towards your retirement fund (enough to at least be stable and protected during your retirement)?
It may be wise to evaluate the value of your assets and compare it to how much you may need or want to put aside for each stage of your retirement years.
The importance of liquid assets
Liquidity is critical to have for any farming or agricultural business – in many cases, the size of your business can impact how critical liquid assets can be for you. As an example, let’s say you run a small business operation where you have constant cash flow throughout the entire year – your liquid assets may not be quite as big of an issue. Now let’s say you run a much larger business where you begin investing in crops earlier in the year but won’t see income from that yield until the fall. How will you account for financial obligations during the growing season? How would an accident or illness impact your ability to finish everything you need to do in order to earn a profit for the year?
“Goodyear” homes
Have you ever driven by a farmhouse down a back road and noticed it’s added new expansions or renovations? We call these “goodyear” homes because usually when a new addition to a house or anything is added, it means that the farmer had a good yield that year and made extra money to invest into his property. However, sometimes farmers have a bad year too. Can you think of any financial set backs you might have had in the past that may have drastically affected your retirement savings plan? Perhaps looking into selling assets can help you replace that lost time and money in order to get you back on the right track for retirement.
With the help of a skillful and well-informed financial advisor such as myself, we can evaluate where you stand financially for retirement and what steps you need to take before officially selling your farm. At Synergy Life Financial, I have the tools to help empower my clients and guide them towards retirement with ease. Check out my guidebook 10 Tips to Maximize Blue-Collar Wealth as well for more information on retirement planning. If you have any questions or concerns about selling your farm and preparing for retirement, please reach me at info@synergylife.ca and set up an appointment to meet. Also, keep following along with this four-part series of blogs to learn more about planning for retirement and selling your farm.