Financial Stress, Labor Decisions, and Farm Resilience: Tools to Evaluate Your Operation

Bringing another person into the farm operation — whether a family member returning to the farm or a new employee — is one of the most important financial decisions a business can make. While the conversation often focuses on roles, responsibilities, and transition planning, the financial capacity of the operation must come first.

At recent Farm Shield Conferences in Kokomo and Bloomington, Michael Langemeier (the presentation slides are available here) discussed the current financial environment and how it affects farm expansion decisions, especially labor. Higher interest rates, tighter margins, and increased capital costs mean farms have less room for financial strain than in recent years.

Before adding labor, farms should evaluate three key questions:

1. Is gross income large enough to support another person?

2. Is the farm consistently profitable enough?

3. After adding labor, can the business still meet term debt obligations and replace machinery and other assets on time?

These questions focus on immediate feasibility. However, long-term success also depends on farm resilience — the ability to withstand and adapt to strategic risks such as policy changes, market disruptions, weather variability, and technological shifts.

To help farms evaluate both financial readiness and resilience, the following tools are available:

Agility and Absorption Capacity Assessment

This questionnaire helps farms evaluate their ability to:

– Identify and capture opportunities (agility)

– Withstand financial and operational shocks (absorption capacity)

Key factors include goal clarity, cost structure, diversification, and balance sheet strength.

Farm Business Goals Assessment

This tool helps operators clarify and prioritize business goals such as profitability, income stability, environmental stewardship, succession, and debt reduction — all of which influence labor and growth decisions.

Together, these tools support more informed decisions about labor expansion, risk exposure, and long-term business resilience.