Secrets to Strong Operations

March 13, 2017 02:42 PM
 
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Build lender relationships and keep good financial records

The No. 1 secret of strong farms might not surprise you. But because some view it with varying degrees of importance, there is room for improvement. 

#TPS17 Takeaways
  • Secure capital by prioritizing personal relationships and transparency.
  • Ease financial reporting by following consistent record-keeping protocols.
  • Have a commodity marketing plan and reference it daily to limit risk.
  • Use solid business practices to support successful generational transfers.

“The stronger the financial data, the stronger the operation,” says Nick Stokes, managing director 
at Rabo AgriFinance. 

In Stokes’ view, top farmers stand out among good borrowers for several reasons. First, they value their relationship with their lender. Second, they have a clear vision for their business and are generationally focused. Finally, they take pride in the ownership of their organization.

Stokes encourages producers to have a handle on all their costs and to constantly monitor them. Ensure all financial data points are in order before meeting with your lender.

The less risk your farm poses, the better. “If I have good data, you’ll get a quicker answer and get a better rate,” he says. “We are minimizing risk with high-quality information and financial statements.” 

Don’t be intimidated if your lender asks about finances, Stokes advises. “It is not to debate or make you feel uncomfortable,” he says. “Through the answers, I can understand your operation.”

Demonstrate your ability to meet financial projections to cement the business relationship with your lender even further. 


Top Ways to Reduce Risk

Today’s volatile environment, tight margins and high capital needs are just a few of the reasons farmers should adopt good business practices, says Peter Martin, principal, K•Coe Isom. He and Top Third Ag Marketing’s Mark Gold offer these strategies.

Collect the right data. “Risk management comes back to having really good information,” Martin says. Aggregate all the information for your seed, chemicals, fertilizer and inputs. “This helps you find errors, plan for upcoming years and ensure you received the price you were promised,” he says. 

Prepare a detailed marketing plan. As lenders become more cautious, marketing plans will be essential. “The biggest step you can take to manage agricultural price risk is to put a marketing plan in place,” Gold says. 

Consistently code your financials. A big part of quality financial data is consistency. “When information is spread out in many places, it is harder to manage,” Martin says. To make sure your data points are valuable, code every expense in the same way. Don’t just create new categories. Use the same cutoff date each year for all entries.

 

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