Financial Goal: Plan for Disaster
Dec 14, 2012
If you have planned for the worst and don’t panic, you can manage your way – and your dairy’s -- through adversity.
By David M. Sousa, CPA
Click here for David Sousa's presentation from the 2012 Elite Producer Business Conference.
This morning I discovered that I had a virus on my computer. I immediately went into disaster recovery mode. I first tried to deal with it myself by running an antivirus program to try to defeat the virus. That was unsuccessful, so I went to plan B: Call my professional. I trust that my professional can eventually deal with the virus and computer issue, but I cannot afford to be without my computer while the computer technician works on it.
In my business, being without my computer is like a dairy farmer without a loader. The dairy can run for a little bit without the loader, but without a back-up or back-up plan, he will get into trouble real fast.
Lucky for me, I have planned for the unfortunate circumstance of having a computer breakdown. I simply went back to my backup computer and lost very little time. In the event that the virus had deleted my important files, I have both internal and external backup sources. I was prepared for this disaster. Most disasters are unexpected and cannot be fully planned for. There are ways, however, to begin the disaster planning process to help you to survive through a disaster.
I remember the day I learned that dairy consultant Mike Cherniske was trapped in Hurricane Katrina. He had taken his daughter for the weekend to New Orleans to attend Tulane University. It just happened to be when the full force of Hurricane Katrina hit. He was trapped in his hotel room without food or running water for several days. His resourcefulness and disaster planning helped him to survive through this ordeal.
Financial disasters are not dissimilar to natural disasters. If you have planned for the worst and don’t panic, you can manage your way through the process. Assume that you get a call from your lender today who tells you that your bank accounts are now frozen and your lines of credit have been shut down. She also tells you that the bank is keeping your milk check deposited today too. The bank tells you that, unless you agree to a complete liquidation, they will not even advance enough money to feed your cows. You are already on c.o.d. with the grain company and you only have three days of any feed in inventory left on the dairy. Can this happen to you? Why not? It has happened to other dairy farmers this fast.
If you have not already planned for this situation, most likely you will make an appointment with bankruptcy counsel. You make the appointment with the attorney, and he tells you that, in order for him to begin working on your behalf, he needs a $125,000 retainer. You meet with a second attorney, and he agrees to begin with a smaller retainer of $50,000. You then remember this article and my suggestion “Bury a coffee can with $50,000 inside in your backyard.”
After the Great Depression in the 1920s, many people did just that. They remembered being caught without any resources and hid money in coffee cans, under their mattress, etc. You don’t need to go so far as to actually bury a real coffee can with $100 bills in it, but have something set aside somewhere in another institution that is readily accessible in the event of a financial disaster. It might be your only source of funds until you are able to get back on your feet and work through your long-term plan.
Those who fail to plan are really planning to fail.
David Sousa, a CPA, is the owner of Sousa and Company, an accounting firm based in Visalia, Calif. His firm works with more than 80 dairies in multiple states, preparing financial statements and income tax returns. Sousa also consults with dairies on cash-flow forecasting, financing, estate planning and bankruptcy. Contact him at email@example.com or (559) 733-0544, est. 108.