Ask Choice Financial’s Chief Credit Officer Greg Goodman his most important piece of advice for farmers, and he’ll tell you three words.
Get. A. Plan.
Before the loan advice or the insurance details, the plan is the most important part of running a successful farm or ranch.
“You need to have a plan for everything,” Greg says. “If you don’t have a plan, you don’t know where to go.”
It’s something Greg has seen over and over again, throughout a career spent entirely at the intersection of agriculture and finances. He grew up on a farm, and after college worked the farm with his dad. At the same time, he started a job with Ag Country Farm Credit Services. As CCO at Choice, he works primarily with farmers and others in the agriculture industry. Sitting at both ends of the table, as he puts it, has given him a broad window on the do’s and don’t of a successful farming operation.
And while it may sound simple, a plan is something that can be easily overlooked.
So what exactly does a plan look like? Here’s a few resources to get started.
1. Get to know your farm business manager.
Farm business managers, provided through the North Dakota and Minnesota Extension Services, are highly underutilized. These are folks who are trained to help with financial accounting for farming operations throughout North Dakota that help producers not only understand their current financial situation, but also assist in developing a playbook for the future.
These folks are educators, not just bankers. They understand things like commodity marketing and agronomics. Yet only an estimated 15% of farmers currently meet with their area extension farm business manager.
So, Greg says, this is step #1. Meet with your farm business manager. In North Dakota, you can contact them here. Together you can put together the first draft of a plan, setting financial goals and budgets for your farm.
2. Get to know your lender.
Your lender is your biggest resource. Because they work with many different operations in the industry, they have a unique perspective on how things work. They are the ones who can give you an idea on how to proceed — and not just by putting numbers together. Your lender can give you a comprehensive look at where you’re at in the long-term goals of your operation.
Now, Greg recommends utilizing both of these resources to create the most thorough, bulletproof, whatever-the-weather-brings-proof plan. You can either meet with the lender first and then your farm business manager, or vice versa. Just meet with both of them to form a plan.
Here are a few other tips to creating the best plan possible:
1. Get everyone involved. Greg recommends that everyone who has an economic interest in the farm should be part of the plan-making with the lender. Husband/wife, brother/sister, children who are farming and those who decided not to farm. Even the grandkids, if your operation is multi-generational. Communication with your business partners and family is vital in establishing both long and short-term goals of your farm or ranch.
2. Know what your cost of production is — inside AND outside the farm. When determining your production costs, don’t just look at what it costs to put crop in the field. You need to look around at everything. For instance, on-the-farm-costs might include chemical fertilizer seed, supplies, etc. Outside the farm, costs might include family living, health insurance, college tuition, debt, and other costs. All of these play a factor in your costs of production. By knowing what your costs are, you can create a successful plan with your lender as to how to keep on budget, and what price and yield you need to hit with your crops. Understanding break-evens makes your marketing plan much easier to execute.
3. Communication. It might sound cliche, but communication is the key to success. Talk to everyone who has ownership in the farm and make sure they are up to speed on the planning process, and the finances of the operation. Talk to your lender ahead of time — not after you’re in trouble — and communicate exactly where you’re at as a business. In fact, ask your lender what the bank rates your operation. Most bankers have a Risk Rating Scale that typically ranges from a 1 (best) to a 7/8 (worst). Know where you are at – your banker may be surprised to get these questions! Talk to your farm business manager and let them help you with your accounting. Together, you can form the best plan and the best team to create a sustainable farming operation.
Making a plan is critical. Too often, Greg meets with farmers who bank outside of Choice Financial who are desperately seeking a new lender because they didn’t have a plan, and now they are in financial trouble. Unfortunately at that point, it’s too late. The plan needs to be in place in good times and in bad!
But fear not! By following these tips, you can make a plan that ensures you won’t be in that position. With a bit of work ahead of time, you can ensure your farm will last through fair and stormy weather, and anything in between.
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