Dads wisdom with Mike Paulson and Randy Fiddelke

Joe

Paulson: This is Joe Paulsen with Ag View Pitch. Today we are doing a kind of a special Dad's Wisdom with my father, Mike Paulsen, and his good friend Randy Fadalke. Randy and my dad met in 1983 during the farm crisis, and Randy was a consultant, a farm, farm consultant, and You know, my father and I kind of have a huge debt of gratitude to Randy and his wife and what they were able to do for our farm during the '80s. If it hadn't been for their intervention and helping guide the ship, you know, there may not have been a farm for me to come back to. And, you know, we're just eternally grateful for that. And with that, we'll I'm gonna let Dad introduce himself. If you could just, your age, how many years you've been farming, that kind of thing.

Mike

Paulson: Well, my name's Mike Paulsen. I'm gonna be 75 this fall. Been farming pretty much all my life except for college. And good. Yeah. So anyway, I met Randy through Tom Fry. Tom Frye was giving a presentation on farm financial standards, uh, uh, analysis at our local Farm Bureau. And, and I asked if someone in the consulting business, and he said Randy Fidelke and gave me his number. And, uh, so I met Randy in March of 1983, and we've been, uh, working with him for, for that many years. It's been wonderful.

Joe

Paulson: Randy, can, can you go ahead and introduce yourself, give a little bit of a background?

Randy

Fiddelke: Sure. Randy Fidelke. We now currently live in Manchester, Iowa. I was born and raised on a small farm out in central Nebraska and graduated from University of Nebraska in Ag Finance and Ag Credit, Ag Economics. And talking about my history, and then I went to work. I worked for Farm Credit. And part of that was because of Tom Frye. Tom was a professor of mine at the University of Nebraska and was by far one of the most influential professors I had in any of my education career. And we remain good friends. But Tom, through his experience and then my experience with farm credit, I always wanted to get into the consulting business at some point in time. And I've worked in credit for several years and then had an opportunity. My brother— I moved to Iowa. My brother and I had a farm management and real estate company.

Then eventually I sold that to him and started the consulting business back in the early '80s. And my background in credit and finance was immensely helpful in particularly able to look at balance sheets and income statements. And you soon realize the variance throughout the whole industry and how people kind of get caught up sometimes. Well, if my neighbor can do it, I can do it. Well, until you see the balance sheets and still you see the statements. You got to be very careful going down that road.

Joe

Paulson: Everybody's unique.

Randy

Fiddelke: Without a doubt. Yes. And particularly in getting into the consulting business back in the early '80s, uh, didn't realize what the extent— what was going to happen in the '80s and how bad it did get. So it was an experience, a tough experience for everybody, uh, but that was a pretty unique time, uh, and so we worked with a lot of commercial ag, and then I was involved with, uh, a company I got to know through Tom. Uh, it was that time, it was AEC, Agriculture Education and Consulting, which was Steve Holping. Uh, and then I was involved too. Back then, the government was doing a lot of retraining in FMHA staff because of all the farm crisis. And, and so with that, when we did a lot of that training and then AEC became Centrac,. And then they did a lot of loan officer training, bank training, farm credit. So we got involved.

I contracted with them and I met Dick Whitman at that time. We did some of the training together over the years. Uh, and so that's kind of where the consulting business took us. And, uh, of course the '80s were some pretty, pretty tough and really hard times, not only for the farm and ranch operators, but a lot of banks went under at that point in time. And so there was a lot of training to be done, not only for the people the producers themselves, but a lot of lenders had to learn a different way of doing business and some did it better than others. You know, there was banks that failed. So that's a little bit of background. And so I've been involved with that pretty much my whole life and we got involved in some other industries, but that's kind of my background.

Joe

Paulson: So your, your, your wife Barb and you then eventually started doing like monthly books for farmers and stuff. When, when about did that, how, how did that aspect of the business kind of come into, you know, get, get started? Was it we saw this need and then we were able to kind of fill this?

Randy

Fiddelke: Well, back then when you start, when you sit down with most operators and I was across the desk as a lender for many times and it was very obvious then with a lot of people that were in trouble, uh, or struggling on the financial side in ag. And always used to say the only balance sheet or financial statement most people referred to then, you know, was an upside-down balance sheet because that's the only way most producers ever saw it. And I sat across that desk and we filled out the balance sheet at one renewal time.

Joe

Paulson: Yep.

Randy

Fiddelke: But, but to ever see very— it was rare that anybody would ever come in with a prepared balance sheet. They didn't know how to do that. They didn't understand that. You start talking about income. Yeah. And particularly back then through Tom Frye, and I got a very good training through him on the coordinated financial statements and learning, you know, how do you analyze farm operation on accrual income statements and, and here again, most farmers, the only income statement they knew of was their tax return. Yeah. And that's what they tried to make decisions on, which is, if you learned anything about accounting and profitability, doesn't tell you anything other than a cash basis, which most farmers were on. So to really get a true picture, you really needed, you know, the numbers. Well, we soon realized mostly farm operations didn't have the numbers.

Their basic accounting system was, if the banks want to lend me the money, it's in the checking account. I pay my bills and hopefully there's something left in the checking account at the end of the year. You know, and so particularly not being on any accrual income, which is—

Joe

Paulson: excuse me. You're all good.

Randy

Fiddelke: I just forgot to shut this off. So sorry about that.

Joe

Paulson: No, you're, you're, you're all good, Randy.

Randy

Fiddelke: Yeah, I should have did that before I come in, but Anyway, because it's very obvious if you don't have good data.

Joe

Paulson: Yeah.

Randy

Fiddelke: How are you going to make good decisions? And, and to get that across in agriculture and talking to the producers we work with. And so they say, where do we— well, where's the software? How do we do this? And it wasn't really available. And then so through the— at that time we had a system where we could do that and then we were able to take the numbers. So we started providing that. Service to our clients. And, and so we had clients from 3 or 4 states that we, we did that. We did that all the way up until about the year 2000. But it was a challenge because convincing farmers and ranchers that you had to pay somebody to help you get the financials together so you could really make decisions, and that was— most people never paid for that service and and didn't feel it was necessary. And we still always had that kind of, I'll go back to my lender if I can get the money.

And I heard it once, I heard it 1,000 times. The guys would tell me, or gals would say, you know, I just want to farm. I don't understand all this. You know, I just want to farm. And it was very evident back in the '80s, sitting down with many clients, and I heard them say, If I can just get interest rates down. And of course, we saw interest rates back then, particularly with farm credit, pushing 17%, 18%. And I'd have them say, if we can just get interest rates down, I can make this work. The problem was, as you get to look into the financials at that time, and there was a lot of debt taken on and land purchases, particularly in our area, a lot of contracts, short-term contracts with balloon payments.

You get to looking at the operations and so many of those, you sit down with people and you say, well, we can take the interest rate, whatever they were paying, 15, 17%, and show them that if you paid no interest with the income you're producing, you don't have enough income to even make the principal payments. And that's why so many people lost their farms. They were really, they, they were in their own mind, they thought it was the interest was causing the problem. Interest was a problem. Oh yeah. So many—

Mike

Paulson: it's the amount of debt you carry.

Randy

Fiddelke: It was the debt. Debt's a great resource if it's properly managed. Yeah. And in this case, so many people didn't understand that and they understood that, well, if the bank lent it to me, it must be all right. Well, that's where you have to, you have to change your mindset that just because somebody is willing to lend you the money, and I've said that to many clients over the years, once you have a little success, A lot of lenders will lend you way more money than you should be borrowing. Oh yeah. And but, but, but if you don't understand your own business, your own financial situation and where the profitability is or isn't, you're going to make that mistake. And that's still true today. And I'm— we have short memories, I say, in this business. A lot of people that are farming now weren't around in the '80s and didn't see what can happen.

Now I'm not saying we're not going to have a land collapse or anything like that. That was a different situation. But understanding the business is still as critical as ever. And just because a lender is willing to do that, if you're going to be successful long term, you have to be able to manage the financial side as well as the production side. And that was a hard concept for a lot of people in ag to wrap their arms around.

Joe

Paulson: Being able to do your own balance sheet, you know, just the exercise of that. Of going through the mental gymnastics of filling all those things in, you know, it just helps you be really in touch with what's going on. And, you know, if, if your banker's doing your balance sheet for you every year, you know, start having them teach you how to do it is, you know, is one of the best things you can do for your business is understand. I mean, that's an evergreen principle is understanding where you're at, what the cash flow is like, and, uh, and then also doing some stress testing because the bank's, the bank's doing that, you know.

Mike

Paulson: Oh, well, I, I felt with Randy over the years that, uh, the biggest value was not only how to get good numbers at the end of the year, but then how to analyze them. And what really, uh, hit me between the eyes is once I started with Randy and doing the bookkeeping, is after 2, 3 years of data lined up on the same sheet, what was this year like compared to last year and so forth. It, it really showed you the value of the analysis, the analysis of numbers. And you were able to help us with that. And, trending. Oh, it was just the best money ever spent.

Joe

Paulson: And, farmers, tend to, in my opinion, a lot of times we tend to take a magnifying glass and focus really intensely on just the year that we're in. And, uh, you know, you know, you look at, uh, the chart of the S&P 500, you know, it doesn't, it doesn't just go, uh, just into infinity on an angle. It jumps up and down. And, uh, you know, when you're in a trough, it seems like the world's coming to an end. But if you're able to step back and look at your financials from like a 10-year period and start looking at the different aspects of your assets, liabilities, debt-to-asset ratio, debt service numbers, you know, you kind of get a feel for the direction the business is going in. And having that larger perspective on your business is— it's interesting that even back, you know, back in the '80s, that was you know, is helpful to be able to see that.

Mike

Paulson: But I think, I think it's so critical, important if you can have a third person or third party to help you analyze those numbers, that it's just not what you think or what the banker thinks. It's an outside person to take those numbers and analyze them and help you, uh, guide you through that.

Randy

Fiddelke: It's just really important.

Mike

Paulson: Yeah, and absolutely.

Joe

Paulson: So, uh, what, what were some of the things that made my father a good client when it came to consulting that made your job easier, made him successful? What were some of those principles that you think, you know, were, were helpful?

Randy

Fiddelke: Well, particularly with the background I just explained a little bit back in the '80s and kind of the environment we were coming out of or was in with agriculture, the good clients, and we had many good clients and were people that were willing to listen, you know, that didn't— admitted that they didn't understand the financial side of their business. And so when you start proposing things, this was all new to them. And, you know, never had to do that before and able to listen to that and to listen to somebody else's perspective and whether we agreed on everything. And I— the clients that were willing to listen and make changes and make adjustments, which are very hard. And those times that people remember, that meant in many cases we had a lot of clients. We ended up— we had debt forgiveness involved with lenders.

We had land that was deeded back to restructure the balance sheets. And just, just a rough situation. We had one— I remember one client. They owned a lot of land, good land. And the mother in this case pretty well controlled the operation. And she told me, she says, Randy, I'll do anything But I won't sell any land. And they owned a lot of land. And I tried to explain to her, I just said, you can do that, but I said, you're going to lose a farm every year at the rate you're going, whether you sell it or you don't. And that particular operation refused to sell anything, and they lost it all. Lost almost 2,000 acres, ended up in bankruptcy. And that was the only case I ever had like that. But, but there was a case and I tried to get them, and this was early on before the crisis really got bad. I tried to get them to sell 300 or 400 acres and they absolutely refused to do that.

At that time, we could have sold that land. And when things got really tough, we probably could have been buying land back. But instead they lost everything. And so we kind of get ingrained, you know, and particularly land ownership, when you have to make corrections, it's a, it's a very emotional emotional. Yeah. Situation. And that part was extremely hard back in the '80s. You know, I, you know, I got calls from, you know, 5 o'clock in the morning till midnight, people losing their farms. And these were people that were on the front of the covers of some successful, very successful ag magazines. Yeah. And many of those people did lose everything. But it's, you got to be willing to accept it.

To me, I always kind of, as comparison, they said, if you went out and just say you bought a prize bull and you just paid whatever, $50,000 for this prize bull, and you found out when he semen tested, he wasn't any good. Well, are you gonna go use the bull? I mean, you kind of hate to swallow your pride and say, hey, we screwed up. Yeah. We made a mistake. Well, we gotta adjust for that. We can't, can't keep going down this path. Right. Yeah. Or this is gonna be a poor result.

Joe

Paulson: And corporations do that. All the time, you know, where they're, you know, have to make tough decisions, laying people off, downsizing, whatever. You know, if, if you're heading in the wrong direction and the sales need to be adjusted, refusing to adjust the sales is, you know, signing your own, your own death warrant, basically.

Randy

Fiddelke: And going back to the question about your dad and your mom. Yeah. At that time, Mike and Maddie were very willing to listen. And, you know, not that I had all the answers, but I felt I knew enough about finance and credit that some of the things were obvious that we could do. Yeah. And to restructure some things, whether that's restructuring, terming out debt, maybe eliminating some equipment, maybe eliminating some, some land. Yeah. You know, whatever it might be to get it back to the point where then you can be successful and have an opportunity to survive one of the worst times, in the ag history. Oh yeah.

But, but you, you have to be willing to, to, to learn new things and admit that maybe I don't know everything, you know, and not that I did, but I always said for those operations when we went through, we needed, particularly when we got into a lot of the restructuring and debt forgiveness and all that, we needed a very good CPA. We needed a very good attorney that understood ag. And, and then I always said, I don't, I'm not a CPA and I'm not an attorney. I don't do what they do and they don't do what I do. You know, when we started doing business plans and such like that for a farm operation, a lot of CPAs will tell you what they can do for the last tax dollar. You're going to say, well, and that's even estate planning and everything today yet. That might be great for the last tax dollar, but that may not be a very good idea for what this operation needs to do to accomplish their goals.

And same way with legal, when we needed good attorneys, when we sat down on a workout, you know, this is what we wanted. And I'd go to the attorney and say, you tell us how we do it and do it so it's legal and we're not going to have any problems down the road, particularly back in those days. Debt forgiveness, tax considerations, everything got to be a very dicey thing to handle. But so you need all those parts in certain times. But, but, but everybody, like I say, those people didn't do what I do. And a lot of financial consultants around. You need those people. And so your battery of help, you know, needed the team. The team just got expanded. And most of the farm operations never had to deal with that before. And some made the adjustments, some didn't. Some survived even beside of it. Maybe they had enough equity that they could finally get through, but many didn't.

And that was true not only of lenders or of the producers, but there was a lot of banks that failed. There was a lot of lending practices that were obviously not good practices. And there was many banks that failed. And so, and we did a lot of loan officer training back in those days. So it was a learning experience for everybody. But it, it to me is a moving target. It's just like today, you know, that balance sheet's a snapshot of that business at that day, whenever you do it, if it's January 1st. But, but then going forward, you better have the ability on a monthly basis and cash. In fact, a lot of companies anymore, a lot of those numbers are even more current than monthly. Yeah. And you're going to have to adjust whether maybe it's weather conditions, whether it's pricing, you know, whatever you had planned for capital purchases that year.

And all of a sudden, if you got to make a decision, well, this isn't going the way I thought it did. We're going to have to adjust. Well, if you don't have the numbers, how are you going to make that decision mid-year? Or mid-month. And those are something that's ongoing all the time. It's free.

Joe

Paulson: You can't, you can't, uh, you can't fix something, you can't improve something that you don't measure. And, uh, you know, it's—

Mike

Paulson: and I think one of the things too was important for Maddie and I. You had to use the word being humble. You had to be humble and say, I don't know everything and I need to reach out to good people, whether it would be like my CPA or Randy, an attorney. That's, it's just critical to get good people. Oh, the team is, uh, the team is, I look back on life and the people that I've dealt with, whether it's be equipment, fertilizer, Randy, it's just been phenomenal.

Randy

Fiddelke: My CPA is just, yeah, was always just blessed. A goal of mine with most of our, or our consulting clients was when we sit down at the beginning of the year and we're putting together an operating plan or an operating budget, that when we sit down with the lender, we should have everything that lender could possibly want or need to make a financial decision and get our clients in a financial position where when we sat down and laid out a package, we told that lender what we wanted, whether it's this much for an operating line, this how much is going to be term potential for equipment. And we kind of was in a position finally to get to the point we could dictate some of that. So we're not at the mercy of a lender to say, well, maybe you'll be in business or not.

Well, if you can get yourself where you have the information and you know enough about your business— we have many clients that will have a lender that was obvious maybe wasn't on top of their game and, and interest rates for operating loans or whatever. And I knew for many, many cases we could take that line of credit and I could take it anywhere I wanted, and I know we could get approval.

Joe

Paulson: And the cornerstone of that was knowing your numbers and having information.

Randy

Fiddelke: And you had, you had all of that and you knew they were accurate and you knew the numbers were good and you knew what the profitability or the potential of that business was. And we had cases where lenders say, well, I don't know about that because we had some lenders that didn't understand it either. And so there were times we moved lines of credit and we'd go to a lender that did understand it. And all of a sudden we wanted, we'd go in and we'd say, here's what we want for whether it's $500,000, a line of credit or whatever. And these are the terms and we know what the rates were and we expected good rates. If you're sound financially, you don't necessarily always have to take the rate that they— yeah, because there's competition for this business and it's still that way.

But, but if you're on top of it and you're financially sound, you should be able to, able to dictate some of that and get good, good terms, good rates. But you got to understand kind of how that whole package goes together.

Joe

Paulson: Got it.

Randy

Fiddelke: No, you're not. Short-term, long-term, all of those things, whether you're buying land or buying equipment. Yeah, it's all, it's all important. And the numbers we deal with today are so big. You know, you don't— mistakes are easy to make anyway, but you want to minimize that the best you can.

Mike

Paulson: And his— I don't know if I ever told you, but his bookkeeping system that I used, not only at the beginning of the year that you made out your monthly budget, But then every month when you sent your stuff out to Randy, then you got what was budgeted and what was actual. And then it was a line for variance, whether you were over or under. So it helped you throughout the year to keep track of what you're doing and how things are going. Like Randy's saying, to be able to adjust every month or every couple of weeks what's, what's going on. Especially that was huge.

Randy

Fiddelke: That was just phenomenal.

Joe

Paulson: That's, yeah, I mean, I, after I get done with planting, I sit down with my profit manager. And I, you know, because do I have a good crop that started? And then, you know, you get into July, and, you know, you start paying off some of these bills, like, you know, you get done with your herbicide pass, you got a hard number on what your herbicide cost is now. And, you know, so throughout the year, you're trying to turn all these projected into actuals.

Mike

Paulson: And how did that go with your budget? How close were you to budgeting?

Randy

Fiddelke: Correct. Correct.

Joe

Paulson: Well, this has been fantastic. Is there anything else that you guys would like to share with the listeners? Any wisdom that, you know, really helped see you through?

Mike

Paulson: I mean, well, to seek outside advice, and I think that's just huge in any operation to And the mental weight of that. Oh yeah.

Joe

Paulson: Yeah. To be able to have somebody to visit with.

Mike

Paulson: Well, and then during the year I would call Randy when, when there was something that I wanted to maybe an equipment purchase and I'd run that by it and to have another person's expertise and set of eyes on the numbers and it helps you guide. It was, it was great. I remember when we bought the home farm back in 2002, how much he helped me with that and guided me through it.

Joe

Paulson: It was just, burden shared is definitely lightened.

Randy

Fiddelke: Yeah. Well, I was fortunate to have the farm credit training that I had when I was in lending was immense for able to understand analysis and balance sheets and income statements. And then going from that into the farm management and real estate side. So we handled a lot of, you know, 1031s and we had a lot of sales coming out of those tough times. So, I was in a very unique situation with my background to cover things that really were pretty sensitive in the '80s and then going forward. And so I just, I think today the challenge is for, and we've talked about that a little bit, I think we've got to be a little careful in ag today. The problem seems that my whole lifetime in ag, we've been trying to produce our way out of, you know, low prices and, and low yields.

And I think our challenges are going to be the markets, the new markets and such, because, agriculture, because of the efficiencies it has, has been our own worst enemy.

Joe

Paulson: Oh yeah.

Randy

Fiddelke: You know, if you think about it right now, we're whatever, we're going to be pushing 300 bushels of corn or whatever it's going to be. And yet we're going to be sitting on probably a record crop and where are we going to get rid of it? You know, and so new markets and those are going to be paramount. And I think there's going to be opportunities out there we don't even know about yet. But you got to be open-minded about it on your own operation. And maybe where do you diversify? Where do you look at some other avenues of income? And just don't get too set because this is always the way we did it. Correct. And, uh, there's obviously a lot of examples out there. There are people finding ways, and, and it's usually You know, the little things, and you start accumulating all of those, the little decisions that add up in here. Maybe it's $10,000 here or $5,000 here.

Sooner or later, that all runs into real money. And so I just, I think I challenge particularly our young operators. Most of them are coming out of education now with some ag training background on finance. There's a lot of great people out there, but you gotta always be looking to what the next opportunity is and how can you better your operation, or maybe it's We found that even in our own business, I was in the consulting business and we got involved in some other industry and businesses along the side that worked out very well. But so, you know, keep an open mind and don't be afraid to learn. You never, ever, never quit learning and know your numbers.

Mike

Paulson: Well, quite a few years ago also, Randy told me one day we're having a conversation and he says, remember, you can't eat equity.

Randy

Fiddelke: And I think that's, that's really important. Well, that was a huge mistake back in the balance— what we call balance sheet lending, equity lending back in the '80s.

Mike

Paulson: And it got a lot of people in big trouble, both producer and lenders, because you can't eat equity, but the banker sure can eat the equity if things go the other way.

Randy

Fiddelke: So, no, the bankers and lenders, we got great lenders, we got great banks out there, but at the end of the day, it's the burden's on you and your operation. And there was a lot of finger-pointing, and rightly so, both ways back in the '80s. But at the same time, ultimately, it's your responsibility to understand the business. And if you don't understand it, then get the help. Get the people, whether it's in nutrition or whether it's in, um, any of the production side. And there's lots of tools out there available. And who knows what, with AI and everything else, what's all that going to be? It's, it's a whole new world, and obviously there's going to be a lot of changes in the future, and you better be willing to adapt. Yep.

Joe

Paulson: Well, thank you guys. Uh, you know, the know your numbers and, uh, build the team. Have a good team behind you. Don't be an island.

Mike

Paulson: Yeah, don't be afraid to reach out and get someone.

Randy

Fiddelke: Yeah.

Joe

Paulson: Well, thank you, gentlemen. I really appreciate it. And, uh, join us again for the Ag View Pitch.