Road Warrior

Dos and Don’ts for Younger Agricultural Producers

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In my last column we discussed advice for the senior generation in agriculture, based on a question I received from a Missouri audience asking about the dos and don’ts for the generations. Now let’s shift the focus to the many younger folks who are entering or who are involved in the agricultural industry.

To the younger generation desiring to farm or be involved in agribusiness, a business plan is critical. A business plan starts out with a set of written goals, including business, family and personal goals. In essence, these are the core focus areas which you can use to test the validity of opportunities and challenges.

Of course, a written operating plan, including financial budgets and cash flow statements, is imperative in working with family members and particularly your lender. A critical link for the younger generation is to have your risk management plan, i.e. marketing options, hedging, contracts and/or crop insurance, linked to basic assumptions and scenario testing of cash flow outcomes. While we do not like to think of it, a plan B, or exit plan, if basic assumptions do not occur needs to be in the business plan also.

Don’ts for the younger generation

Do not select a lender based just on low interest rate. Your lender should have a track record of successfully doing business with the younger set of producers. Do they understand agriculture? Do they have board and management leadership with similar values?

Another don’t for younger producers in a family business: do not assume the operation will be yours at the passing of the senior generation. The senior generation should include the junior generation in financial negotiations, results and decision-making. An old rule of thumb is if the senior generation does not share the financial information or have the younger generation participate in financial discussions with the lender within a six-year period, the younger generation will tend to become a hired person for life. For some businesses, that may be okay, but in the fast-changing volatile world of agricultural economics, this is a cornerstone for future business problems as the younger generation matures.

Lenders bring in younger producers to the Missouri agribusiness conference each year, which benefits both sides of the equation and demonstrates sincere investment in the future of agriculture by the lender. What a great best management practice!

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on Apr 3, 2014

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What's Road Warrior?

Dave Kohl is an ag economist specializing in business management and ag finance. He can be reached at sullylab@vt.edu.

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