Edition #17

October 28, 2023

Good morning and welcome to the Braintrust Ag newsletter. Where we are trying to make more “jolly ranchers” (and farmers) through tips, tools, and meeting other like-minded people.

A few notes to begin:

• Our first Expert Q&A (gotta think of a catchier name than that) is coming up in November… more details to come!

• Had a few members asking to connect with ag lenders. We don’t currently have any ag banker ESPs, so if you’re a lender, consider applying so I can refer them.

• A couple members connected through the community and they’re scheming a pretty cool ag-adjacent side hustle. Looking forward to seeing it get launched. That’s what this is all about!

Alright, let’s get to the topics that will help you build a strong, sustainable agri-business.

-Clint

Here’s what we have this week:

• 👨‍👨‍👧‍👦 The Farm Family

• 📈 Balance Sheets

• 🤝 Business Partnerships

• 🛠 Resources

• and more…

WHOLE FARM PLANNING: The Farm Family

Comprehensive planning is crucial for farm businesses because it ensures proactive management, addresses the unique challenges of agriculture, and lays a foundation for long-term sustainability and success.

The first and most important component to consider when looking at a whole farm planning approach is the farm family.

It's the backbone of the whole operation.

Now, every family's got its own story, things they believe in, and stuff they want to achieve together. It's important for them to sit down and really think about all the highs and lows they've had on the farm. What worked in the past? What didn't? It’s all about learning from what's already happened to make smarter moves going forward.

Now, here's the thing: families often have these big dreams and values, but they don't always talk about them.

It's crucial to get those ideas out in the open. That way, everyone knows what they're all about and what they're working towards. It keeps things real and helps avoid any nasty surprises or disagreements later on.

But it gets a bit tricky. You see, in any family, there are lots of personalities, right?

Even folks who aren't working the land every day—like maybe an off-farm sibling, or an in-law, or an ex-spouse—they still have a part in the big picture. They might have opinions, expectations, or they’re somehow involved in the finances. Whatever the case, it’s important to consider their impact on the business to keep the peace and make sure things run smoothly.

Speaking of the future, there's this whole big deal about who takes over the farm next. That's a tough one. Families need to have those heart-to-hearts about who’s going to step up and how that transition's going to happen. It’s not just about keeping the farm running; it’s about respecting everyone’s wishes and keeping the family close.

Now, mixing family and business? That’s like a double-edged sword. It's awesome because you're all in it together, but it can also stir up some drama. Setting some ground rules can help a lot here. This means making sure everyone knows when it’s time to talk business, when it’s family time, and maybe even bringing in someone from the outside for a fresh perspective when things get sticky.

And, the young ones need to get ready to lead someday, right? It’s not all about knowing how to plant crops or milk the cows. They’ve got to learn how to make tough calls, handle money, and understand what their family’s farm is all about. It’s about passing the torch the right way.

Lastly, don’t forget that neighbors and other folks around town are paying attention. A family that sticks together, shows they know what they’re doing, and treats people right. They’ll earn a lot of respect and support in the community.

So, in a nutshell, running a family farm is a big, beautiful challenge. It’s all about sticking together, having those open chats, planning for the future, and keeping those family vibes strong, all while making sure the business doesn’t miss a beat.

Next week, we’ll look at the next component we all ought to recognize as a driver in looking at the whole farm planning approach: individual assessment.

TESTIMONIALS

I’ve been encouraged to set up an easy way for folks to leave a testimonial.

If you’d be willing to take a minute, click here to leave your thoughts.

Thank you, kindly!

RESOURCES UPDATE

A handful of resources available for download I’d like to highlight:

Sheep Enterprise Budget

Easy to use complete Enterprise Budget for calculating income, expenses, and profit for a ewe flock.

Located: Resources > Budgets > Sheep Enterprise Budget

Flex Rent Spreadsheet

Analyze the various options for flex rent arrangements and propose a unique structure to your landlord.

Located: Resources > Buying & Leasing Farmland > Flex Rent Spreadsheet

Farmer’s Market Handbook

A comprehensive guide to starting a farmer’s market in your community.

Located: Resources > Industry Resources > Farmer’s Market Handbook

BALANCE SHEETS: Accrual vs Market

Thoughts from ag lender Grant Wiese on accrual vs market based balance sheets:

When working a new loan request or updating financials, I will occasionally receive an updated balance sheet pulled from a bookkeeping system (i.e. Quick books or your CPA).

While it is great to have your cash flow and bookkeeping up-to-date during all parts of the growing cycle, there are a few issues with creating balance sheets from this type of recordkeeping database. Accrual (or cash basis) financial statements misinterpret a few key items that will probably negatively reflect your actual financial position.

Here are some examples of the differences between a true market basis balance sheet and an accrual balance sheet.

1. Accrual balance sheets lack current inventories. No current crop or livestock inventories are included. Your 120,000 bushels of corn are missing! This severely impacts your liquidity and underestimates your true working capital.

2. Accrual balance sheets show equipment and real estate valued at the purchase price the day they were bought. Then, there is a separate line item showing the amount of depreciation that has been taken off those items since the day they were bought. With accelerated depreciation being used as a tax write off, this usually underestimates your equipment and building values compared to market value, further diminishing your assets.

3. From a liability standpoint, current portion term debt is often not brought forward into current liabilities. In fact, very few details are provided on the loan terms. This creates uncertainty around payments, interest rates, and due dates.

The accrual balance sheet can be a good starting point for recalling most of your assets to create the balance sheet. If you are using this format, make sure you include current crop and livestock inventories (including bushels and number of head), a list of all equipment and real estate with a market value attached to them, and all term debt details to create an accurate financial statement.

In the example below, Net Worth on the market basis balance sheet is an accurate $2,144,190 compared to the inaccurate Net Worth of $505,355 from an accrual statement!

Check out his other great info at https://farm640.com/

ESP SPOTLIGHT

Endorsed Service Providers are pivotal to the Braintrust Ag community. These industry experts know their professional services niche and how they directly impact farmers, ranchers, and other ag business owners.

This week, I’d like to direct your attention to ESP, Kyle Bumsted with Allendale-Inc.

If you’d like to learn more about the ESP program, click here.

BUSINESS PARTNERSHIPS

Before starting your next business partnership, consider these do’s and don’ts of universal business partnership principles I’ve adapted for ag businesses:

The Do’s

Evaluate Compatibility in the Agricultural Context: Farmers seeking partnerships need to assess potential partners based on shared visions for agricultural practices, commitment to sustainable farming, and perspectives on managing seasonal pressures.

Search for Complementary Farming Expertise: Successful farm operations often require a diverse set of skills, from animal husbandry and crop cultivation to mechanical proficiency and technological savvy. A partner should fill skill gaps crucial for comprehensive farm management.

Conduct Ag-Specific Background Checks: It's essential to confirm a potential partner's experience, success in production, livestock management, or even their handling of past agricultural crises, ensuring they can contribute positively to the farm’s operations.

Discuss Financial Protocols Transparently: Given the capital intensity of farming, clarity about investment in equipment, livestock, seeds, and response to market fluctuations is vital. Partners should agree on financial contributions, distribution of profits, and strategies for potential debt or loss scenarios.

Establish an Agri-business Exit Strategy: Farm partnerships should consider terms under which partners might exit, including the sale of land or assets, transfer of responsibilities during planting or harvesting seasons, and protocols in case of personal emergencies or health issues.

The Don’ts

Avoid Partnerships Based on Insecurity: Entering into partnerships solely due to fears related to market pressures, financial instability, or workload anxiety isn't prudent. Partners should provide tangible operational value and resilience to the farming enterprise.

Don't Ignore Disparities in Commitment Levels: Farming demands substantial physical and time investment, especially during peak seasons. Potential partners must be ready to match these commitments to ensure fairness and shared responsibility.

Never Rely on Verbal Agreements: Given the complexities of farm management and land ownership, written contracts are indispensable. These should detail asset management, operational roles, dispute resolutions, and contingency plans for crop failure or market downturns.

Reconsider Partnering with Friends Without Professional Basis: Friendships based on non-professional interactions should not be the sole reason for forming partnerships. Understanding each other's farming approaches and accepting the risks involved are crucial. A trial collaboration during a planting season could help assess compatibility.

Identifying Potential Partners:

In the ag world, potential partners might be fellow farmers, neighboring farm owners, experienced employees from other operations, or academically trained individuals passionate about farming. Essential is a thorough evaluation of their farming knowledge, skills, and work ethic.

In summary, creating a thriving ag business partnership requires more than just a shared interest in farming.

It demands strategic pairing based on compatible visions, complementary skills, and mutual commitment levels, all formalized within a legally sound partnership agreement. This approach ensures that the partnership can weather the inherent uncertainties of agricultural production and market forces, contributing to a resilient and productive farming operation.

MEME OF THE WEEK

That’s a wrap, folks.

Until next week, thank you to everyone involved in ag. Come engage on the new platform & let’s grow profitable ag businesses together.

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DISCLAIMER: All content, communications, and resources provided by Braintrust Ag, its principals, operators, or members is intended to merely be educational and entertaining. Nothing published by Braintrust Ag should be relied on as legal, financial, investment, or other professional advice. Investments and legal matters involve substantial risk and are not suitable for all individuals. It is recommended to enter into a client relationship with an ESP for obtaining professional advice.