Financial SustainabilityPosted in: Business By Kim Gerencser January 1 2013
In recent years, the word “sustainability” has crept into the media on many levels and has become commonplace in many corporate cultures and strategies. To be sustainable means to support long-term balance and not deplete your resources.
Sustainability most often refers to environmental resources, but cash is a resource that doesn’t get included in most discussions about sustainability. Yet your farm depends on cash just as much as water or anything else, and depleting your cash flow is no less harmful to your farm than depletion of the water supply. Without it, there is no farm.
In fact, over the past 50 to 100 years, the biggest challenge your farm has faced is probably cash, or more specifically, access to working capital. How many challenges could have been minimized or removed, if there had been no worries about cash?
“Whoa, wait a second,” you might be thinking. There’s never been more optimism in agriculture than now; there’s more money flowing into the industry now than in any previous generation. Banks are actually competing for my business, not the other way around. Grain prices remain high, interest rates are at historic lows…money is easy to get. And you’re right, it is…for now.
Moe Russell, President of Russell Consulting Group, LLC and AGRITREND Senior Business Coach says that when grain prices cycle downward, and they will, there will be a lot of farm operating lines of credit that won’t get renewed. He’s seen many farms that have not done a good job of bullet proofing their balance sheet in order to survive, and thrive, during a down cycle. In fact, now there are many farms that have extended their borrowing to their respective limit, and beyond that, we could see carnage when our industry encounters a down cycle.
“Bullet-proof your balance sheet during the good times, so you can catapult ahead of your competition in the bad times. If you get greedy during the good times, you will likely be on your knees in the bad times.” – Moe RussellMany farms have leveraged this current boomtown atmosphere in agriculture to expand and upgrade. Land is trading feverishly (in quantity and price) and equipment dealers can’t keep enough shiny new paint on the lot. Thus, the number of farms who are “fully extended” has climbed rapidly. They plan to grow into it. This isn’t new. We’ve seen a similar situation in the late ‘70’s and early ‘80’s. And yes, Iagree, agriculture is very different now than it was 30-odd years ago.
What isn’t different is that we are still a commodity-based industry. Commodities will always have the potential for unpredictable swings. Have you ever stopped to ponder that we are merely a global average crop (not a bumper crop globally, but an average crop) away from $9 canola and $4 wheat? That’s a serious “down cycle” to your top line revenue and your farm’s profitability. Let’s face it, last time, I checked when grain prices were falling, crop inputs DID NOT follow along. How “sustainable” would a highly leveraged farm actually be with steep land and equipment payments if the world produced an “average” crop?
Now let’s have a look at the other side. There are many farms that could not or chose not to expand to the point of being highly leveraged. They may have lower debts on assets, yet they may still not have adequate working capital. Moe Russell suggests that farms consider refinancing the land now to ensure access to adequate capital, especially for opportunities that arise when times get tough. When the commodity prices lower and agriculture loses its appeal to the lenders, it will get even tougher to access the capital when it’s really needed.
An AGRI-TREND® Business Coach™ will focus on these issues and develop The Strategic Farm Business Plan™ with you. From it, you will know how to bullet proof your balance sheet, build a sustainable long-term plan and manage the “non-commodity” risks that can cripple your business. The Strategic Farm Business Plan™ will also address Human Resource issues, analyze your debt strategy, how you are insured and provide a thorough evaluation of your historical financial information.
For years, AGRI-TREND has helped farmers “Grow the Crop” with help of Agri-Coach Professionals and the Strategic Crop Plan, then “Sell the Crop” with the help of Market-Coach Professionals and the Strategic Marketing Plan. Managing the business is the next level, and for many, the most important one right now. Call 1-877-276-7526 to start your Strategic Farm Business Plan today. Kim Gerencser is AGRI-TREND’s first Business Coach Professional. He is a Certified Financial Planner, a father, a husband and a farmer.
e. KGerencser@AGRI-TREND. com
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