Banking on the Future

This article was originally published in the September issue of Soy Perspectives magazine.

You must gain control over your money, or the lack of it will forever control you. That’s the mantra of financial planning guru and broadcaster Dave Ramsey. Agricultural financing experts say his advice holds true, even as new financial management tools and technology are rolled out. Some tools may be a boon to producers, but new widgets are worthless without a business plan.

“Our members need structured financial management,” says Jackie Martinie, senior vice president and chief credit officer, Farm Credit Illinois in Mahomet. “Just like everything else in life, you need a plan before moving forward. A detailed business plan includes an annual budget so growers can fully understand cost of production. You can budget the enterprise overall and budget down to each farm or field if you want. The budgeting process is all about understanding the cost so you make the best decisions around inputs, cash rents and associated costs.”

Martinie relates that a budget should include detailed cash flow estimates. For most producers, a monthly cash flow is a must and contains all cash inflows and outflows like all financing activities and family living expenses. Accrual records are extremely important because they help producers make better-educated decisions compared to cash basis tax information. She says such records also paint a more accurate picture for basing the best lending decisions.

Risk management and marketing plans must be included in the business plan as well. Martinie says that a sound marketing strategy will help producers keep emotions out of decisions, stick to their plans and increase odds of making a profit.

Start at the Right Table

“I can’t stress enough how important it is we all communicate, communicate, communicate.” – Ed Elfmann, senior vice president of agriculture and rural banking policy with the American Bankers Association (ABA) in Washington, D.C.There was a time when meetings to launch annual plans and loan discussions between lenders, farmers and family members was initiated at the kitchen table.

Ed Elfmann, senior vice president of agriculture and rural banking policy with the American Bankers Association (ABA) in Washington, D.C., says it is time to move that to a roundtable.

“I can’t stress enough how important it is we all communicate, communicate, communicate,” Elfmann says. “All of us involved must understand where you are now and where you’re trying to go. Your accountant, lender, lawyer, seed representative, spouse, children and anyone else who may have lending obligations need to be part of your circle of advisers. We all need to be on the same page. This is a highly important practice to grow a successful business.”

Elfmann notes that excellent resources exist to help improve existing business plans or start new ones, in addition to the experts at a producer’s roundtable. They include:

• FINBIN: farm financial and production benchmarking information
• Illinois farmdoc: multiple online tools and articles, budget examples, crop budgets and whole farm operational scenarios
• ABA Agricultural Banking: tips under “Press” heading

“In addition to farm expenses, know your living expenses,” Elfmann says. “Not knowing what you actually spend in the household can throw off income statements and related documents. It’s easy to say a pickup is part of the farm expense, but in reality, it’s a living expense.”

Read the full aticle at ilsoy.org.