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April 2013 Archive for Fiscal Fitness

RSS By: Dairy Today: Fiscal Fitness, Dairy Today

Financial management experts, lenders and accountants share ways for dairy producers to improve money and credit management. Look for help on budgets, taxes, loans, financial performance and even bankruptcy.

Are Your Preparing for Your Retirement?

Apr 26, 2013

While it’s never too late to start planning, the key is to start in your early years.

Gary Sipiorski VPBy Gary Sipiorski, Vita Plus Corporation

You will not find a group of people more dedicated to their careers than dairy producers. Dairy producers surround themselves with people, living creatures and crops that must be attended to 365¼ days a year. They often get so wound up in what they do that they forget time passes by and one day they will not be able to do the physical and mental work required to run the business.

So, are you preparing for that time down the road? I do not have a Series 7 (stockbroker’s) license, so I cannot give specifics of what to invest in, but I can suggest choices of directions you have. The key is your dairy will have to be passed on to someone. That may be a family member(s) or the next buyer.

Many dairy producers say, "My dairy is my investment choice and my retirement. So I plow everything I have back into my farm!" Others say, "I am never going to leave, they will have to bury me here!" One way or another, you are going to have to build up enough equity to give you choices when that day comes to turn you over or the farm over to someone else. You cannot have two bankers on the farm. You can be the banker or a lender will be borrowing money to the next owner. So, back to our question at hand, where does that leave you for your retirement?

1. If you have dairy that supports a single family, you will need to have most of the debt satisfied when you decide to retire. Most of these types of farms have stuck every dollar right back into the farm for machinery, cattle, land, buildings or other things the farm needs. Many times there is a spouse that works off of the farm. That income will be used for family living or buying farm items that are needed. A lot of times the off-farm income will have some type of a retirement plan tied to it, like a teacher’s retirement or other investment opportunities. That can be used in a retirement plan as well. I have also known dairy producers who do manage to squirrel money away in investments off of the dairy so they actually do have a nest egg put away.

The key to any off farm investment is to start early. Find a trusted investment person who can help you set up a retirement savings and earnings account with monthly deposits for the future. Now, when time comes to pass on the farm, the relative or new buyer can borrow money from a bank to pay off the retiring couple. The retiring couple may be in a position to offer a land contact and get paid back over a period of time, basically turning the farm asset into an annuity that pays back monthly. Here again, the farm has to be mostly debt-free so the first couple is not also having to make bank payments. The cash flow of the farm is a key factor here as well. So make sure you have a productive herd of cows that can generate enough income to support the next generation’s payments.

2. If you have a larger multi-family dairy, you may have some additional options. With an adequate cash flow, invest money can be set aside off of the dairy for a future retirement. Here again, it is important to start early. Therefore, when retirement comes, there are off-the-farm investments to fund a new lifestyle. This farm as well needs to be in a strong financial equity position. There is nothing wrong with these farms carrying debt. It just has to be able to manage the payments. Borrowed money must be able to generate at least twice the return that it is borrowed at.

Many times the owner(s) of a larger dairy are managing people and making management decisions. They are doing a lot of mental work. They can continue this style for many years. The key is to train the next generation to make decisions so they can slowly phase themselves out as retirement nears. Stock or ownership transfers can occur with the next generation, assuming the business debt and responsibilities. The first generation can be paid out over time with a monthly income or all at once if lender borrowing can be arranged. Tax planning is critical and any time a farm transfer is being considered on any size farm.

It is never too late to start planning for retirement. It really should start in the early years, because some day you will not be able to do what you are doing today.

Gary Sipiorski has a long career in the banking industry, doing business primarily with dairy producers. He has been associated with the Citizens State Bank of Loyal, the Graduate School of Banking in Austin, Texas, the Independent Community Bankers of America, the Governor’s Task Force on Growing Agriculture in Wisconsin, and the Advisory Council on Agriculture, Industry and Labor for the Federal Reserve Bank of Chicago. In 2008, he joined the Wisconsin-based nutrition firm, Vita Plus Corporation, where he is dairy development manager. Contact him at 608-250-4267 or

After the Crash: What to Expect

Apr 14, 2013

Don’t just sprinkle the money around. Here are smart ways to use your improved cash flow as you come out of the pricing crisis.

p7 Fiscally Fit Riley WalterBy Riley Walter, attorney

In prior posts, I have focused on things that I have learned and observed from representing numerous Central California dairymen during the depths of the dairy crisis.

However, now that there may be some light at the end of the tunnel, it might be a good idea to turn attention to what dairymen might do once there is a positive margin between the milk price and the feed price.

Having seen dairies come out of crises in the past, I know that one of the first things dairymen tend to do is spread the "excess" margin over all of their creditors. They apparently believe that sprinkling the money over the entire creditor body is a good way to go. It is not. Not all creditors are equal. You need to use the enhanced cash flow on those you need or those who have priority. Don't just sprinkle the money around. Pay the CPA you are going to need as you move forward. Fix items of deferred maintenance, especially environmental problems. Catch up on insurance and utilities. Work on rebuilding the herd. You need to use the additional cash flow in a rifle-like manner, not a shotgun.

Second, do not be surprised when there is an avalanche of creditor lawsuits seeking to collect on long overdue vendor bills. As soon as there is excess cash flow, you can be sure that the dam will break and a large number of lawsuits will be filed as creditors jockey to get ahead of other creditors.

Third, please get your accounting, bookkeeping and recordkeeping systems up to par. A lot of folks have let this slip during the crisis either because of the stress or because they did not feel they could call upon their accountants when they could not pay them. You really want to get this cleaned up. At some point, we all hope, lenders will be back in the market, and they are only going to lend to those who have superior financial and recordkeeping systems. The old days are over. You are going to have to demonstrate substantial management and financial acumen going into the future. Being "good with cows" is not going to get you a loan.

Fourth, for those of you in California, it is reasonable to expect that the environmental regulatory floodgate is going to open. Recent court rulings make it pretty clear that dairymen face substantial regulatory compliance costs in the near future, and you need to be contemplating this as your finances improve. If you sprinkle the money to overall existing creditors, you may well be unable to maintain environmental compliance.

Last, and this is maybe hard to comprehend, many dairymen have been able to avoid filing Chapter 11 due to extremely hard work and just by hunkering down. However, many of these dairymen are saddled with huge amounts of vendor debt. That debt is not going to go away even though cash flow improves. Some, maybe many, of these dairymen will need to consider filing Chapter 11 to propose plans to shed debt. To do this, they really need to get their financial report systems up to par. If these dairymen are able to demonstrate "feasibility," they will likely be able to shed considerable unsecured debt.

So, here’s hoping that the reports of enhanced cash flow are true.

Riley Walter is an attorney and founder of the Central Valley-based Walter & Wilhelm Law Group, a law firm specializing in agribusiness, reorganization and bankruptcy. Contact him at 559-435-9800 or

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