NW Call to Action
I really enjoy working with farmers who have a plan.
There are plenty of producers out there who have successfully navigated the ups and downs of farming for decades without a plan, but it is the ones who are motivated to get stuff done that really fire me up.
What gets exciting is when I am talking to the next generation who is motivated, wet behind the ears, but still ready to take on the world despite their lack of inexperience. Often, what they lack in age and general inexperience, they make up for in targeted expertise and an enthusiasm for growth that only comes from someone who hasn’t been burned by life yet.
Growing a financially strong balance sheet takes a long time. Anything that takes a long time is going to require patience. To help you motivated individuals keep your head up working through the years of patience necessary, I have a to-do list for you over the next 3 years. Something to focus on and channel your energy towards.
Here are 5 things you should be doing in your first 3 years of farming before you ever make a large purchase:
Form relationships with professional advisors.
This one is big and broad. There are a ton of ag professionals out there who will be shifting their attention to you, because winning your business will get them their paycheck.
Don’t sign up with the first person at your doorstep. Try to meet with at least 3 individuals in each field. This gives you the benefit of A) beginning to learn the lingo yourself to become better educated, and B) beginning to realize who is a good talker and who is actually good at what they do. These advisors should include:
Lender, agronomist, mechanic, equipment dealer, crop insurance agent, property insurance agent, seed dealer, chemical dealer, accountant, legal attorney, estate attorney.
If you can be referred to any of these advisors from a trusted farmer source, that can be an added bonus to get the inside track. Be aware that just because a referring farmer seems to be successful on the outside, looks can be deceiving and the operation may not be as stable as it appears.
Too often farmers start working with their high school or college friend who doesn’t take their career or job seriously. You can only grow and learn from those who are true experts and know more than you. You are putting yourself at a disadvantage if you aren’t a little intimidated or uncomfortable working with the person across from you because of their stellar reputation and track record.
The most successful operations often end up working with the same professional advisors as their equally successful peers. It is your goal to find and work with those experts, because they could be the key to bypassing decades worth of trial and error into faster growth.
Find ground to rent.
Too often individuals think they can only rent ground if they were born into the right house with the right family.
Wrong!
There is where I really challenge you.
Finding rental ground is a networking issue. Just like I had you talk to 3 individuals in each field of advising, you need to let everyone know you are looking to grow the operation and take care of those landlords. You can’t add ground if no-one knows you want any.
You can also piss a lot of people off if you don’t use some tact. So, let’s use common sense.
Try to connect with absentee landlords through gentle letters or communication. Knock on some doors of potentially retiring farmers and see if they need some help. Find ways to offer up your services or add value to those around you.
Finding rental ground is also a value issue. If you aren’t doing something to help the community, your pleas for ground will appear selfish.
Start an ag related business that the community is lacking. Join the school board. Be involved with your church. Better yet, get involved with state agricultural groups such as a Corn Board, Cattlemen’s group, or other organizations where you can represent agriculture, bring value to all, gain incredible knowledge, and network at a much larger scale.
If you are leading groups and become a well-known commodity as a young 30-year-old farmer who is well respected, opportunities will find their way to you.
Start understanding your balance sheet.
I’m obviously impartial to this one.
You need to know the best ways to utilize your money, how debt impacts you, and have discipline with your funds. Here is a good place to start: Working Capital vs Cash Flow (Part 1)
Calculate breakeven by field.
Create an Excel spreadsheet and start tracking every expense you make on the farm (bonus points if you do it for living expenses, too).
You should know where every dollar goes every year. If you have multiple fields, break out the data to see which fields are high expense and which fields are producing the majority of your income. This makes it so much easier for future decision making when you need to negotiate rents or possibly buy a new farm. You start to get a feel for the ranges of your income and expense potential.
The farmers that bring me the most detailed breakeven information they customize to fit their own operation all have the strongest balance sheets.
Coincidence? No way.
Build a net worth of $250,000.
I want you to spend your first 3 years focusing on the 4 steps above, with the goal of hitting this target.
Net worth is your total assets minus total liabilities. You will need to understand balance sheets and stay away from large expenses to hit this goal. You will also need to become efficient with your farm, sharpening your pencil in the cash flow. Maybe you even found some ground to rent to boost your income!
It is even highly possible you need to get a job off the farm to reach this mark. There is nothing wrong with becoming one of the professional advisors in step 1 to add value to others, generate income, and stabilize your operation (that’s what I’m doing).
But why are you trying to grow a net worth of $250,000 by year 3?
In the United States, you become eligible for the Farm Service Agency’s (FSA) joint financing programs after completing 3 years of active farming. When making a land purchase, you don’t want to have your Owner’s Equity (Total Equity/Total Assets) dip below 25%, otherwise you are at risk of not getting credit approval and frankly, you are just too leveraged and high risk.
By growing a $250,000 net worth after 3 years of farming, you could start looking to buy ground for roughly $750,000 and have an acceptable equity position to get credit approval.
Use the energy and enthusiasm you have around the farm to take care of the business above, and you will be in position with the right advisors, connections, balance sheet, and cash flow to buy your first farm.
Have a great day!
Grant
All views expressed on this site are my own and do not represent the opinions of any entity whatsoever with which I have been, am now, or will be affiliated. Information provided is authentic to the best of my knowledge, and as such, is prone to errors and the absence of key details. The content of this blog is for entertainment and informative purposes and should not be seen as professional advice to finances or any other field.