We continue building on the column shared two weeks ago on financial literacy for farmers and SMEs in general. For this week, we would like to dive deep into debt management, as this has an impact on how we manage our finances and build on financial freedom. 

Debt management is a critical component of financial literacy, which will help ensure that you effectively manage your finances, and may require the knowledge and capability to manage your debt, such as credit cards, loans and mortgages. Additionally, one has to understand the impact of interest on debt, not only the interest charged on the
loaned amount, but also on missed payments. 

Thus, for farmers and businesses to maintain their financial stability and ensure the long-term viability of
their agricultural operations, debt management is critical, and must be prioritised. Below are key strategies to consider to ensure effective debt management:

Budgeting and Financial Planning:We have reiterated this several times now, and it is the first step in managing your finances. One important takeaway is that a budget is not meant to be restrictive. However, it is a tool that can guide you, and helps you monitor your finances. In most cases, it allows you to consider your priorities in terms of spending so as to ensure that you don’t miss important payments.  Thus, we should ensure that we create a comprehensive budget that includes everything, the income and expenses. Your budget should also include items such as bank charges, airtime and so forth, as these are things that most of us take for granted.

A budget should be flexible in that you should be able to change it according to your farming and business needs as they arise, especially items you have never accounted for before. The budget should be reviewed monthly to make sure that you are on track, according to your plans. It allows you to identify areas where costs can be reduced or revenue can be increased.

Debt Assessment:Review and evaluate your existing debt portfolios such as loans, credit lines and other financial obligations. Make sure you understand the interest rate of each debt and repayment terms so that your repayment plans align, and you can then prioritise accordingly to ensure the effective management of your finances. 

Open and honest communication with creditors:It’s important to maintain open lines of communication with your creditors, especially in case of any drastic changes that may hinder your ability to pay. If you encounter financial difficulties, you can notify them proactively and look at possible solutions such as reforming, refinancing or adjusting payment schedules. Creditors may be understanding if they see that you are actively engaged in finding alternatives to the problems.

Diversification and Risk Management:

Last week, we reflected on diversification in investments. The same is always said about creating passive income.

Look for opportunities to diversify your income streams of the business, and also beyond that to ensure that you reduce reliance on a single crop or product/business. Diversification will allow you to spread out your risk, and possibly mitigate the impact of unexpected events or market fluctuations.

We will continue more on debt management in next week’s column.

* Mekupi Kambatuku:

Managing Consultant at Simpli Business Advisory

admin@simpliadvisory.com

www.simpliadvisory.com