Frontline Insight from Young and Beginning Producers
December 3, 2021
Willie Nelson’s song, “On the Road Again,” is very appropriate for my spring and summertime lecture activities. After 17 months of conducting more than 200 webcasts, human interaction has been energizing and a blessing easily taken for granted. One of my favorite activities has been lecturing and facilitating young and beginning farmer groups. The objective is threefold: sharing insight on national and global issues; providing tools and techniques that can be used in their business, family, and personal lives; and developing a forum for networking and engagement. These multiple day sessions have not disappointed and led to some interesting perspectives.
What Keeps the Newbies Awake at Night?
No, it is not caffeine from a Red Bull, which I was considering on a recent all-night trek from St. Louis to central Ohio. Interestingly enough, uncertainty regarding family business transition and overall succession planning was beginning farmers’ biggest worry. Many communicated it was difficult to get parents and other family members to start the process. This often results in a lack of focus and causes tension when making strategic decisions. Many hoped the potential tax law changes – expected to prompt an acceleration in business transition – would light a fire under this vintage segment.
Many young producers are carrying large amounts of debt as a result of recent startup and growth. Interest rate direction and the overall perspectives on inflation impacting input costs were frequently mentioned as worrisome.
Many are also concerned about the availability of productive labor. This was reinforced on my recent trip up Interstate 55. It seemed that every billboard had a “Help Wanted” sign, including a Wendy's restaurant where a noticeable shortage of productive workers was observed.
An interesting trend is the large number of individuals who recently returned to the farm after time in other occupations. Many feel overwhelmed by the complexity and change occurring in the agriculture industry. Some indicated challenges faced when explaining business decisions to a spouse who does not have an agricultural background. Of course, the uncertainty in government regulations, agriculture trade, and weather were high on the list of what keeps this aspiring group of agriculture entrepreneurs awake at night as well.
Building the Phoenix
The next generation in agriculture is analogous to a phoenix, the mythical bird rising to the occasion. What are some of the principles and practices that will give them a higher probability of being on the positive side of the financial and quality-of-life ledgers?
- Managing the Controllable Variables: One nugget of wisdom in an economic, political, and social environment of extremes is to manage the controllable variables and manage around the uncontrollable factors. This often entails planning with a team of advisors including crop and livestock experts, marketing specialists, accountants, and agricultural lenders. This input can provide broad perspectives to filter into the planning process to establish priorities and focus.
- Visualization of Outcomes: Analogous to a stellar athlete, mental preparation is just as important as the physical aspects. In agriculture, developing cash flow projections – incorporating production, marketing, finance, and operational efficiencies – can be the mental discipline needed for success. In an economic environment of rapid change, constant monitoring and tweaking of financial spreadsheets is a tool for the decade of the 2020s.
- Pivoting: Becoming quick and nimble through working capital discipline can be a key for success. Key metrics such as a working capital to debt service ratio of 3:1 to 5:1 provides a cushion for adversity, while also positioning for opportunity. Maintaining four to eight months of household expenses in cash can assist in the family budget as well.
- Profitability: A profit plan is critical in a growing business. The 60-30-10 Rule can provide structure in the plan. That is, 60% of the bottom-line profits go toward operational efficiency first, and growth second. Discipline in building working capital is critical, so as much as 30% of profits should be allocated to this area. Finally, 10% of profits are house money to enjoy yourself.
- The Journey: Circling back to the number one reason for sleepless nights for the new generation, a concerted effort toward transition and estate planning is a continuous process in the pathway to passing the torch. One percent of the value of the assets or equity is often needed to fund transition and estate planning. This journey often requires multiple years and updates every 5-10 years for all generations involved, as well as goal setting and communication in a structured process. If procrastination occurs, the winners are usually Uncle Sam, lawyers, and accountants who attempt to unravel the mess.
Being on the frontline with the next generation of agriculture producers is inspiring, particularly when they engage in the practices that take them to the next level in business and life.