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Ask a Margins Expert

RSS By: Chris Barron

Chris BarronHave a margins question? Through this blog, you will gain insight into improving your bottom line, as a margins expert answers questions and provides farm business advice.


Farm Rent Conversation

Jul 31, 2011


 Many unpredictable forces impact our agricultural businesses such as weather, markets, economy, and government. Volatility adds even another level of challenges. As we manage our businesses and sift through all of the numbers it's important to remember that open communication also carries a high value. As we develop financial plans and analyze specific decisions it's important to be able to communicate this information effectively to the appropriate people such as, family, partners, employees, and lenders.
 I would suggest that landlords must be included in this list as we develop financial plans and goals. Everyone in agriculture is becoming more sophisticated, landlords are no exception. Much of the farm land today is owned by sophisticated individuals, families, or investors.
Put together a number of questions in order to help you understand what is most important to them.
  1. What are the best methods of communication for your landlords?
  2. What information about the farm is important to them?
  3. Would they prefer a long-term relationship or are they interested in a year to year rental?
  4. Do they want fertility built up or just maintained?
  5. Are they interested in high cash rent or high value rent?
  6.  Do they prefer cash over aesthetics and fertility?
  7. How much detailed information do they expect annually?
  8. How many times per year would they like specific details versus just stopping in for a visit?
 We often assume what others are thinking; asking these questions in a conversation can give us a better handle on what our landlords truly value. Assumptions can be hazardous to the health of any relationship.
Once you have developed some understanding of the above questions you can now begin to work on the following list. Based on the answers to the questions, there may be more focus placed on some topics and less on others.
  1. Your specific margin goals? “An acceptable rate of return- long and short-term goals ”
  2. Rent value? “Current rental vs. market value, yields, markets, and inputs costs”
  3. Land improvement? “Tile, waterways, fence rows, building sites, conservation, etc.”
  4. Yields? “Realistic goals, yield mapping reports, and sharing opportunities”
  5.  Additional income? “Alternative land uses and additional income opportunities”
  6. Marketing? “Opportunities and results”
  7. Annual financial results? “Detailed comprehensive reports”
  8. Annual lease review? “Mutually agreed upon, annual information exchange”

Preparing this type of communication plan with landlords may seem complex. Understandably, asking some of these questions in a conversation with landlords may be equally as difficult. Getting started is the hardest part. Implementing some of these communication processes will put you on your way toward a more sustainable solution with your landlords and maintaining your rental property.

If you'd like to discuss some procedures for working with current landlords on rental agreements feel free to contact me.

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