New Hampshire Ag Financiers-Recent Meeting Updates

-Katy Coombs, Loan Officer

On June 7th, I attended the third NH Ag Financiers (NHAF) meeting this year.  We had a representative from SCORE, a volunteer organization made up of retired business executives from major corporations, retired business owners, and subject matter experts that uses its expertise to mentor start-up and existing businesses.  It is a nationwide organization with over 10,000 volunteers.  There are 6 chapters in NH with 100 mentors. This is a free service for the life of the business with the mentors either acting as advisers in a more hands off role or physically getting into the business in one way or another and working with them to improve an identified area such as records, marketing, or human resources.  SCORE has recently partnered with the USDA to try to recruit both farm clients and farm volunteers.  NHAF has identified potential in working with this group to connect them with local farms.  Our next step is to attend a SCORE chapter meeting to talk about what each organization offers their market and how we can work together to best serve our farmers.

In the afternoon, I led a discussion on the dairy industry for the group and some guests.  We discussed the current state of the dairy industry. There was a lot of participation and interest in the discussion. Some good thoughts on possible ways to improve the situation included:

- State branding for products

- Creating new business models

- Comprehensible and accessible training

Major updates from the group were from FSA and UNH Extension. Jeff Holmes, the state director for FSA, discussed the new MPP enrollment and improvements to the program.  Payments should be starting to go out this week to those farms who signed up.  He also discussed the weather emergencies that have kept the FSA offices busy this year including the field damage from the storms from last October (which was covered with snow until recently), flooding and debris in fields and farms, and the confirmed tornado in Sullivan and Merrimack counties last month

Seth Wilner from the UNH Extension talked about the new focuses for Extension going forward.  Their three initiatives for the year are:

1. Benchmarking– farm financial health assessments and making data driven decisions.

2. Farm Transfer and succession planning – three year plans.

3. Women in agriculture – livestock production and business skills.

NHAF is a group that meets four times a year to discuss different ways we can work together to help NH agriculture, whether that means with financing, education, consulting, records, etc.  It is made up of agriculture professionals from around the state and we bring in guest speakers some times to educate us on a particular tool, industry, or area that will allow us to better help our farmers. Members of the group include Farm Credit East, FSA, Community Loan Fund, Land for Good, NH Ag Mediation, rural development, small business association, the NH Commissioner of Agriculture, and representatives from the congresswoman and senators offices.

For more information on the New Hampshire Ag Financiers group, you can email Yankee Farm Credit Loan Officer Katy Coombs at KCoombs@yankeefarmcredit.com

Cost Control Considerations, Part 3: Specific Cost Control Strategies

Cost control is a major driver of profitability in any business, let alone a dairy business. While cost control may be a recent topic of conversation in relation to where milk prices are at present, it really should be considered and focused on consistently in a well-run business. The key to effective cost control is not necessarily cutting expenses, but rather spending dollars wisely. Over the next several posts, we will share a collection of advice geared toward considerations when aiming to lower your net cost of production. So far we have discussed net cost of production and breakeven milk price, the starting point in managing cost control , and the usefulness of a budget . This week we will cover a few specific cost control strategies.

 

6 Specific Cost Control Strategies

Figuring out where to start might seem overwhelming when managing for costs. The first place that will get the biggest response in the bottom line is the largest expense— on most dairy farms, this is feed. Between purchased feed and growing forages and/or your own grains, this may arguably be the expense area that gets the most attention, and rightfully so. There are many ways to track feed and crop expense. Income-over-feed-cost can give you a good idea of the kind of return you are getting for your feeding investment, especially if you can incorporate component efficiency as well. Employing your nutritionist, feeder, herdsman, and financial manager in tracking this area will help you achieve optimal results.


Beyond converting feed into milk, the following are some tried-and-true strategies to consider for effective cost control. Along with each item are a few examples, but with a little brainstorming I’m sure you and your crew can think of many more:

1. Review purchasing procedures – Who should authorize purchases and how? How loose is your operation to employees purchasing supplies? Can anyone go to the local hardware store and charge purchases on account or grab stuff off the IBA truck? If ordering items by mail, stop to consider if the part is really needed overnight. Can you inventory some items, order ahead of time, and save on shipping charges?
2. Review suppliers – Is there a lower cost provider available? Will competitors match prices found elsewhere? This may be a good area to ask employees if they can find alternatives, too.
3. Negotiate, negotiate, negotiate – It’s been said that everything is up for negotiation and you may be surprised just how much is – especially with terms and contracts. One that I hear many farms working out is a contract with an A.I. company for semen purchasing and/or arm service. Usually it’s a monthly price that covers so many units of specific quality and/or so many breedings. Other possible areas are cash discounts, professional service fees, and many more.
4. Review policies and other contracts – Have your insurance premiums been going up? Is it possible to review coverage levels or shop around for a better deal? How about your cell phone contract? Is it just me or does it seem like new or higher fees keep slipping in to my bill every few months? Health insurance is another big area to investigate – there should be a “navigator” or someone at your doctor’s office who can help you wade through options or point you to the right direction on a health exchange.
5. Bulk purchasing – Are there any items that could benefit in savings by purchasing in large quantities and storing? Copper sulfate for foot baths and hoof care has been mentioned often as going up in price recently. Can you buy by the pallet and obtain a bulk discount? How about calf grain – do you buy by the bag or will a small grain bin work?
6. Repairs – Repairs is a common category that can be manipulated to reflect current cash flow. Putting off maintenance or opting for the cheap way out often happens when cash is tight; however the old adage that an ounce of prevention is worth a pound of cure can be particularly true here. How many times has something happened that you could see coming but didn’t get around to or make plans to avert? That cheap hydraulic oil on special may look like a good deal, but what does it really cost you (or your transmission) running it through your new tractor? While repairs tends to be an area to pinch in low milk price years, too much deferred maintenance can add up. 

These are just a few areas to consider for managing cost control on your dairy farm. Next week we’ll go over a few employee-specific concepts as it relates to cost control.

By: Joanna Lidback, Business Consultant
Email: JLidback@YankeeFarmCredit.com

Cost Control Considerations, Part 2: Budget, Plan, and Monitor

Cost control is a major driver of profitability in any business, let alone a dairy business. While cost control may be a recent topic of conversation in relation to where milk prices are presently, it really should be considered and focused on consistently in a well-run business. The key to effective cost control is not necessarily cutting expenses, but rather spending dollars wisely. Over the next several posts, we will share a collection of advice geared toward considerations when aiming to lower your net cost of production. Last week we discussed the net cost of production and breakeven milk price, the starting point in managing cost control. This week we go over the usefulness of a budget.

 

Budget, plan, and monitor 

Creating an annual budget, reviewing, and updating it periodically can help identify trends early, make adjustments quickly, and plan accordingly. A budget is often compared to a road map that charts a course through the year or some other time period, identifying obstacles along the way. You anticipate what will be coming in as income and what will be going out as expenses, as well as any principal payments or capital replacement needs. It helps when making a plan to accomplish goals you may have, or to satisfy any needs that may arise.

 

When considering cost control, a budget helps to track expenses especially when compared to actual results. This can shine a light on areas that may need more attention. For example, perhaps you discover that insurance premiums have gone up significantly without any other material changes in the business. A call to your insurance agent can help to set things right again, or maybe it’s time to find a new insurer. Another example is bedding cost per cow is up significantly – is it a result of the supplier’s cost increasing or is usage increasing? There are many other examples.

 

A few other reasons to budget as you consider strategies for more effective cost control:

1. Evaluate performance of specific area
2. Employee management and/or engagement
3. Sharpen understanding of operations
4. Help meet goals
5. Facilitate discussions
6. Avoid surprises
7. Motivate to be creative/use resources more effectively 

“What use is a budget if I’m just going to blow it the next week with some big tractor repair?”

I sometimes hear this objection to creating a budget. Consider making your budget a work-in-progress, updating it when you have new and better information. You could update the budget and make plans for a big tractor repair, adjusting other aspects accordingly. Milk price forecast is another area that changes several times throughout the year – adjusting for these changes can help hone expectations.

 

In the next post, we will discuss several specific cost control strategies.


By: Joanna Lidback, Business Consultant
JLidback@YankeeFarmCredit.com

Yankee Farm Credit through the Ups and Downs

When profits are up it’s easy to think about what your lender can do for you: finance new equipment, construction of a new building, or help you buy land. When times get a bit more stressful, however, your lender may not be on your radar as someone to turn to for potential help.

It’s important to know that Yankee is here for you both in good times and when things aren’t quite as rosy.

 

If a time comes when finances feel challenging it is important to communicate with your lender and work together to create a plan. We understand the ups and downs of agriculture, and also how much heart and soul our borrowers invest in their businesses. Here are some options that Yankee may be able to so do for you during low periods:

 

• Work with you to ensure quality financial records in order to accurately analyze balance sheets and income statements
• Offer up to three hours of free business consultation to get started on a detailed budget 
• If the current debt load isn’t affordable, help to identify how much debt you can afford and suggest ways to achieve that
• If we are not able to lend new money, we may still be able to defer principal on the current debt
• We may be able to re-amortize the loan in order to lengthen the term and reduce payment levels
• Help preserve net worth

We stand by the Farm Credit System's mission to support rural communities and agriculture with reliable, consistent credit and financial services, today and tomorrow. 

 

For more information on how we can help you, please contact your local branch office by clicking here: YankeeFarmCredit.com/locations

Cost Control Considerations: Part 1

Cost control is a major driver of profitability in any business, let alone a dairy business. While cost control may be a recent topic of conversation in relation to where milk prices are at present, it really should be considered and focused on consistently in a well-run business. The key to effective cost control is not necessarily cutting expenses, but rather spending dollars wisely. Over the next several posts, we will share a collection of advice geared toward considerations when aiming to lower your net cost of production.

Know your cost of production, your breakeven milk price, and the difference between them. 

The first step in knowing where you stand in dairy production economics is knowing your cost of production – but that’s not enough. Your cost of production takes into account operating expenses like, feed, labor, and overhead costs such as interest. It does not, however, include principal payments or capital replacement. And it may or may not include family living expenses. What’s more, sometimes analysts will net non-milk income out against variable expenses, so what you’re left with is a net cost of production – one that can easily be compared against a milk price forecast in order to get an idea of where profit or loss levels will be.

However, cost of production and net cost of production leaves out a very important element, particularly if you have any debt. What you really need to be aware of is how much cash is needed to fully fund the operation, including those non-deductible items like principal payments. Breakeven milk price starts with net cost of production, subtracts depreciation as it is a non-cash item, and adds principal payments. It’s called “breakeven” because it leaves you in an even position cash-wise – not in the negative nor in the positive. Again, comparing the actual milk price and its forecast will give you a good idea of what to expect.

Still, breakeven milk price leaves out capital replacement, which is needed to keep your operation running smoothly for the long term.

You may find that you are burning through cash reserves.

In some cases, you may find that you are “burning” through cash reserves – in some circles, this is known as the “burn rate”. More is going out than coming in. You and your banker may be interested in this number as it is a measure of negative cash flow and what will be required to fund operations until you are in positive cash flow again. This is accomplished by using cash reserves, liquidating unproductive assets, accessing new capital, or deferring principal payments.

Next week we will discuss the usefulness of a budget, or a road map when considering cost control.


By: Joanna Lidback
JLidback@YankeeFarmCredit.com

 

Stop Worrying, Start Planning: Preparing for Estate Planning.

Joanna Lidback, Business Consultant

This article was first run in the March issue of the Miner Institute Farm Report.

It’s a Thursday evening. Chores are done, the bunk’s been covered, and supper was an hour ago. You’ve been thinking about the future while you stare at whatever show is flashing on the television screen – what’s going to happen to the farm? Are the kids ready to take over? Is it time to pass on owning the farm? You know you’re not going to live forever, but how does this all work? How will your living expenses be covered if you no longer operate the business? What exactly will you do in “retirement”? Maybe it’s time to start the discussion.  

Starting the discussion is the first step in estate and succession planning. Estate planning is the process of arranging for the passing on of an estate – your assets (and liabilities). Succession planning is arranging for transferring of management – both daily operations and major decision making. For this article, we’ll focus on preparing for estate planning.

Knowing where you are and how you stand is critical to beginning the estate plan. Advisors, both financial and legal, will be looking for a checklist of information that often includes the following:

• Family information: Names, ages, and statuses of family members (and whether any are interested in taking over the farm); any other beneficiaries
• Business information: Form of business, co-owners, and if entity – details of ownership, pertinent documents
• A list of assets and liabilities: both personal and farm-related
• Rented real estate acreage essential to the farm – any related lease documents
• Bank accounts
• Insurance policies: Life, long-term care
• Retirement funds
• Any preliminary estate planning information: Wills, trusts, social security information, etc.

Another step in the processes of starting your estate plan is to consider what you want to get out of the process and/or how you envision life after the plan is in place. Each person involved in the process, usually you and your spouse, should brainstorm a list of goals or objectives to accomplish. Your list may grow or change as you get further along in the process and that’s okay as long as you communicate those changes with everyone involved. Here are a few examples to get you started:

• Provide for living expenses for both spouses after retirement
• Retire or “reinvent yourself” at age 65
• Fully transfer farm assets to son and/or daughter
• Be able to travel in retirement
• Minimize estate and any other taxes
• Quickly pass on assets and ownership responsibilities
• Be sure farm remains a farm for future generations

There are a few important people to identify that you will be asked about as well. You will need an attorney who can help you make decisions from a legal perspective and to draw up legal documents. You may be asked if you have an executor or personal representative to see that your wishes are carried out, a trustee to manage a trust if you create one, and a guardian if you have minor children or dependents in your care. A financial adviser can help you clarify your objectives and develop alternatives to choose from when putting together a plan to bring to your attorney. He or she can also guide you through implementing the plan and monitoring progress.

Yankee Farm Credit offers business consulting services that can fulfill the role of financial advisor as you venture into this next phase of business planning. Call your local office or check out our website, YankeeFarmCredit.com, to see what we can do for you. Good luck!

Joanna Lidback

JLidback@YankeeFarmCredit.com

(802) 334-8050

New Due Date for 2016 Forms W-2 and 1099

A reminder from our Financial Records and Payroll Services department.

Effective January 1, 2017, electronic Forms W-2, W-3, 1099 and 1096 are due to the IRS by January 31, 2017!

Previously, electronically filing extended the due date to March 31^st. The new January 31^st deadline now matches the due date for paper filed versions of the forms.
So, what does this mean for you?
Wage reconciliation and 1099 reporting information (Forms W-4 and W-9) must be obtained before year end to meet the new deadline.
And how do you prepare?
Put your ducks in a row now before it’s too late by regularly reconciling your records and payroll.
A few tips to help accomplish this:

• Obtain Form W-9 from 1099 vendors before you pay them.
• Keep a record of all payments made to employees and 1099 vendors.
• Keep a log of all tax payments made throughout the year.
• Adopt an accounting program, such as QuickBooks or CenterPoint, to compile all your business activities in one place and produce tax ready reports.

Yankee also offers records and payroll services. Service options are tailored to your needs. Whether it’s at your place of business or in our office, staff is here to help!
Contact your local office for details.

Applying the P-PC Balance

I just reviewed the latest milk price forecast. As an ever-optimistic person, it’s hard to conclude that there is just not much for good news in the dairy industry out there. Milk prices have been adjusted downward again for the short run, meaning grinding through another few months of tight cash flow. Combine that with any number of other frustrations – increased regulation, foiled expansion plans, family conflict, etc. At least grain prices seem to be holding steady at relatively low levels, (as we hold our breath waiting to see what the weather brings this cropping season).


Instead of writing another article about strategies for periods of low milk prices, I’m going off on a tangent to ask you about your P-PC balance. No, this has nothing to do with “political correctness” but for those who have read Dr. Stephen Covey’s The 7 Habits of Highly Effective People, you may recognize this term.


The seven habits Dr. Covey describes in his book contribute to effectiveness. Effectiveness lies in the balance of Production of desired results and the Production Capacity to achieve those desired results. In the book, he illustrates this balance through Aesop’s fable of the golden goose. Surely you remember it: A farmer, going through tough times, finds out that one of his geese lays golden eggs. Each morning the goose has a golden egg waiting for him. The farmer sells the eggs and gets rich but it turns out, that’s not enough for him. One day he decides to kill the goose so he can get all the golden eggs out at once. Once he killed the goose though, he opened it up and found nothing. Effectively, he destroyed his production capacity.


As dairy producers, we are well aware of the P-PC balance when it comes to our cows. Our desired result is quality milk production. We know that if we try to overcrowd or push the cows too much, it can backfire on us in terms of stress, herd health, reproductive issues, etc. This in turn impedes our ability to obtain the quality milk we desire. Thus finding the balance or “sweet spot” for making milk from healthy cows as efficiently as possible is a perennial goal.


The same principal can be applied to owners/managers. What are your own personal or professional desired results? Do you have the capacity to reach them? Are you burnt out, downtrodden or just plain tired? What will it take to refresh or restore that diminished capacity? Those things we do for ourselves tend to get shuffled aside especially during the busiest of times; but it’s those times that we need to be most effective. For some it might be easily found throughout the day – a morning cup of coffee, a short visit with a son/child/grandchild, a cat nap in a quiet corner. It may be taking a bigger break to exercise, go out to dinner with a spouse or significant other, maybe even taking the long way home from town.


However you find it, whatever works for you, it’s important.


I saw a quote the other day that brought a sheepish smile to my face, “Dairy Economists all agree: The milk price will go up…sometime.” It will!

“It’s precisely those who are busiest who most need to give themselves a break.” -Pico Iyer

Success Strategies: Dairy Benchmark 2015

Last week, 48 farmers representing 27 dairy farms joined Yankee for our annual Dairy Benchmark meeting. Total in attendance was 60, so we had a pretty full room.

Based on feedback from last year, this year's meeting implemented a new format. We invited three farmers from outside our region to be on a panel. Panelists Dale Van Erden, John Mueller and Aaron Allen have all consistently been in the Top 20 profitability group throughout the years.

We also had roundtable discussions in the afternoon covering six different topics. The topics discussed were: milk pricing; feed efficiency; income over feed costs; heifer raising strategies; non-milk income strategies and spending habits during times of low milk prices. Folks could pick a table, discuss the topic for 15 minutes and then get up and switch to the next table. These were very well received.

Two presentations were given - the opening talk, which went over trends and results from this year's study and an outlook for 2016.

​Once again, thanks to everyone who participated in the program! We are excited about continuing to grow and build the program.  Thanks!​






Five Short Term Strategies for Surviving Poor Cash Flow

by Joanna Lidback


Economists are indicating that recovery from low milk prices this year will be slow in coming and indeed may get worse before getting better. The first defense in making it through a down cycle is knowing your net cost of production and/or your breakeven milk price. When you have a solid grasp of where you stand financially, you’ll know more precisely how much cash will be needed to keep up.

The net cost of production is the amount you need to cover expenses, (including depreciation and family needs) less any non-milk income, expressed as dollars per cwt. Breakeven milk price hones in even further on cash, including cash operating expenses, debt payments and family needs, less non-milk income.

If you find you need to generate cash, consider these strategies:

1. Cut expenses
When it comes to cutting expenses, everything needs to be on the chopping block. There are generally two ways to cut expenses: cut back on current levels and defer certain expenses. Further, start with your biggest expenses. Review your feed ration with the nutritionist. Evaluate labor efficiency – cut hours if necessary. For deferment, prioritize capital repairs and put off non-essential fixes.

2. Accelerate/supplement income

Not everyone has to go get a part-time job, but there may be other sources of income that could be tapped. Beef prices remain elevated slightly. Can you continue a higher-than-normal cull rate? Do you have timber? What does your forest management plan allow? Was it a good crop year? Any extra crops? Any custom work available? Do you have any outstanding receivables that you could pursue payment on?

3. Finance previous capital purchases made out of cash flow

Last year was a great year. Many farms were able to replace or add new machinery, equipment or vehicles right out of the checkbook. Consider reimbursing those funds from an existing line of credit if one is in place or perhaps you can work with your loan officer to write a new loan. Another option is a “lease buy-back,” where again you reimburse funds spent in the current or previous year and finance via a lease.

4. Request deferral or debt restructuring

Take a look at your debt structure. What is your blended capital debt term? Is there room to consider restructuring your loans? A deferral of principal payments might be a consideration, however this method should be used sparingly. A conversation with your loan officer may go a long way.

5. Sell unproductive assets

What’s sitting out in the yard that isn’t getting you the return you need or expect for investment? Especially if it’s just sitting there, it’s not only costing you overhead, but potentially the opportunity cost of those funds being tied up in the equipment that may be more useful somewhere else.

Milk price volatility is nothing new in the dairy business. While it has increased dramatically over the past ten years, so has the potential for profits with record high milk prices. Recall from the last newsletter, “Financial success for dairy managers can often be traced to how well one uses the profits from a good milk price year to help them in a year with low milk prices.” While we are in the down cycle now, keep this in mind for when the roller coaster goes up.


This article was originally published in the Fall 2015 Association Insider of Yankee Farm Credit, ACA.

Developing the Next Generation - Transition Planning

by Liz Bayne

The skills needed to manage the successful agricultural businesses of today are not gained overnight.  Some skills are gained in school, some with “on the job training” and others through the “school of hard knocks.”

Most of our farm businesses have developed and grown over the lifetime of the older generation now running the business. They started small (at least by today’s standards) and developed their management skills as the business grew. Now, as the older generation is looking toward slowing down and transitioning to the next generation, the challenge is to transfer all the management skills learned in a lifetime to the next generation.

The best succession plans start early and allow a  gradual transition, slowly and continually providing opportunities for the next generation to develop the skills they will need to take over the business. At the same time, this transition allows the older generation to evaluate the potential successors; grooming and developing them based on their desire to take over the business, and their aptitude and skills to continue its growth and prosperity.

In working with farm businesses, I find that production oriented skills are often well taught, with the younger generation learning a great deal from their parents. They are also eager to embrace new technologies on the farm. The area that is often less emphasized is the financial management of the business. I would argue that this should be the most important skill transferred to the next generation. If the farm is well managed financially and is profitable, then there is a great deal of flexibility available for both the older and younger generation. If the financial management skills are not part of this transition, the farm can find itself limited and strained in other areas as well.

Following is a short list of ideas. The goal is to have the financial training start early and to be consistent with it. You can shift more and more responsibility over time. This will ensure that the younger generation has the skills necessary when it is time for them to take over the farm.

Some ideas for transferring financial management skills:

1)   Have regular meetings and discuss the farm’s finances.
2)   Involve the younger generation in the day-to-day process of paying the bills and managing the records.
3)   Allow the younger generation to take part in decision making, such as the purchase of equipment. Discuss your thought process and the pros and cons of the purchase. Have the younger generation do a partial budget on the purchase and present it to you.
4)   Talk about your goals for the farm - short,intermediate, and long term. Prepare a budget as a team to test your goals and then measure the success.
5)   Have the younger generation sit in on a financing discussion with your lender.
6)   Have the younger generation attend farm meetings with you - especially meetings where farm finances are discussed.
7)   Let the younger generation suggest and carry out a change on the farm. Have them present a plan and then be accountable for the results. This is a great learning tool.

Yankee’s consulting program works with farm businesses on transition planning, budgeting, estate and business planning, entity selection and tax planning.  f you would like to know more, please contact me at elizabeth.bayne@yankeeaca.com, or 800-370-3276, or Joanna Lidback at
joanna.lidback@yankeeaca.com, or 800-370-2738.


Originally printed in the summer 2015 Association Insider of Yankee Farm Credit, ACA.

Yankee's Consulting Service: Value You Can Use

Farm Credit’s mission is to support rural communities and agriculture with reliable and consistent credit and financial services. Yankee's business consulting services aids in this mission by offering services that include multiple ways to help improve your results or adapt to change within and outside your business. Our consultants have the opportunity to work with other teams within Yankee, such as our financial recordkeeping and tax services, to be as efficient and effective as possible. Our focus is delivering value you can use, whether the fee is is hourly or project based.

Our consulting services cover a wide variety of needs: business planning, business organization, budget tools, financial and operational analysis, investment analysis, feasibility studies, benchmarking programs, dairy business analysis, profit team meetings, appraisal consulting, conservation easement planning, complex entity tax planning, estate planning, farm transfer and succession planning, and much more!

If you have any questions about how our consultants could help you please do not hesitate to contact Liz Bayne, 802-295-3670, Elizabeth.Bayne@YankeeACA.com or Joanna Lidback, 802-334-8050, Joanna.Lidback@YankeeACA.com.

 

Liz Bayne

Joanna Lidback