Running an agricultural business requires you to be an expert in a lot of areas.
- Soil Biology
- Livestock Health
- Mechanical Repair
- Commodity Futures
- Business Management
- Human Resources
- Marketing & Design
- Tax Strategy
- Website Development
- Financial Management
I'm probably missing 12 other jobs, but you get the point. It's not an industry for the faint of heart. But as you very well know, it's one of the most rewarding industries to be in. It's why a few years ago I started building my own cow/calf operation, and I'm currently working on developing the genetics to become a Registered Gelbvieh cattle breeder.
A recurring theme I hear from agricultural producers around the country is there is no money in farming. In fact, when I talked to people about starting my farm that was something I heard from a lot of people. It pains me to hear people say that, especially when these are the people who provide the food that we have on our tables. Why do producers consistently feel that way?
A few years ago, I started working with clients with agricultural businesses. Some were cattle producers, some had processing facilities, some had vineyards, some grew hay or a commodity crop, and some did a combination of two or three, however every single one had the same concerns.
Their finances were all over the place, and they had made decisions in a silo (like most people) - one decision at a time to help them with a problem at the current time. Those decisions were often never revisited to see if they were still appropriate based on how their finances, their business, and their life changed. There was discoordination across the board. What's funny is they had all these financial people in place - they had a CPA, they had an attorney, they had an insurance person, some also had an investment person, but they didn't have anyone to help coordinate the strategies each of those people advised to implement. Those financial advisors never got together in a room to determine if what they were recommending was overlapping, causing inefficiencies, creating additional costs, or opening the door to potential headaches for the client down the road.
Below are the top strategies for managing your agribusiness and personal finances successfully:
1) Organize your financial operations
As I mentioned above, disorganization increases expenses, decreases returns, and creates additional headaches down the road. You need to make sure everything within your business financial plan is running as close to optimal as possible, and then replicate that within your personal finances. Your tax strategy needs to complement your estate strategy which needs to complement your succession strategy which needs to complement your employee retention strategy which needs to compliment your cash flow strategy which needs to compliment your asset protection strategy and so on.
2) Invest in growing revenue streams
What are the current operations of your business, and where do you want the business to be at in 5-10 years? Building additional revenue streams takes time, it takes a lot of hard work, it takes building a customer base (that you may already have), however it may be a way to grow exponentially. I've had cattle producers build or buy processing facilities. I've had corn and soybean producers build feed mills. I've had vineyards open their doors to customers for weddings. Don't think linearly, think exponentially. The world is changing. Customers want to know more about where and how their food is produced than ever before.
3) Cash Flow is King
Cash flow is one of the things that stresses business owners out the most - in any industry. It more so happens in the agricultural industry because the paycheck may only come once or twice a season. And that paycheck needs to cover expenses for the year, both business and personal. Most people have no system in place. Money goes to a business checking account. They buy some equipment, they pay bills, they pay themselves, and then it often feels like it's gone. Well what kind of system is that? It's simply reacting to the flow of money into your pocket. It's time we design a cash flow system to give you more clarity and less anxiety.
4) Protect your Estate (and your family)
Having a trust, or having an LLC, and putting property or a business in one of those entities is a start. It's a good start. A lot of clients I talk to have at least thought about implementing one or both of those strategies, however most people fail to implement an estate plan or fail to review it to make sure it's still appropriate. Is a trust, an LLC, or both the best place for those assets? Which assets go into which entity? What state do you set up that entity? What type of trust do we put land or a business into? Who controls the entity? When does income get distributed? How long does the trust last?
5) Succession Plan (continuation from above)
What's the transition plan for the farm? You may decide to gift some of the assets directly to children or grand children, or you may gift them to a trust. How much of your lifetime exemption should you use up vs how much of the annual gift exemption should you use? Maybe it's designed that your children purchase the entity in a forgivable-type loan using the annual gift exclusion and then gift the land using the life gift exemption, or vice-versa. This all comes down to keeping your money in your family and out of your Uncle Sam's pockets. There are strategies that involve using money from somewhere else, or other liquid or illiquid assets, in order to create generational wealth, all within a trust and outside of your estate.
6) Retaining Employees
The last few years in the employment market has been wild. There have been more jobs available than people to fill them, and that gap is slowly starting to close. Even so, keeping your best employees happy is critical to the success of the business. If you lose that employee, how much is it going to cost you in resources, time, training, onboarding, etc to bring on someone to replace them? It could very well be double what you're currently paying that employee. With that being said, many business owners are looking to design a plan that incentivizes a key employee to stay for many years, possibly until the owner retires from the business, because it would cost the employee significant future money to leave. And in doing so, doesn't create a significant expense to the business. It actually creates an asset on the businesses balance sheet that can be utilized during that employees career. Not to mention the various tax credits for employee retention and retirement plans that I'm sure your CPA has talked with you about.
There is a ton of depth that we need to go into with each of these areas, however all have significant benefits to the growth, longevity, privacy, and peace of mind within your business. You are involved in one of the most rewarding industries that exists. Without you we would literally all starve. I don't want to sit by and watch more family farms get taken over by the bank and leave you starving.
So let's design a future that gives you more joy in running your business and not let it feel like your business is running you. Send me an email at email@example.com or schedule a meeting directly on my calendar with this link, or if you'd prefer to meet in person, please let me know and we can also arrange that if it makes sense.