State of the farm address

Shay: Welcome back everyone to another episode of the Ag View Pitch. Today you have Shay Foulk, and I'm talking to you today about what we call the State of the Farm Address. I promise you this is not political. I'm not going to sit here and pontificate to you about my politics or my beliefs or everything that I think is going right or wrong in this country. Today's discussion on the State of the Farm Address goes back to an annual review that I do in my farm operation. I know Chris does it in his, and then also many other businesses, farm businesses, ag businesses that we've worked with over the years have taken on this idea and this concept and implemented it into their businesses. So what is the State of the Farm Address?

Well, what we do at the end of the year, whether it's the fiscal year or calendar year end, is put together the financial analysis, a very in-depth financial analysis We put together things like videos and pictures that add kind of a personal touch to it, and then also build out the projections for the business. So some of the things that we want to make sure that we're including in this are, you know, what did we think was going to happen, what actually happened, and then what do we do about that moving forward. So we kind of like to look at it in those three phases, you know, here were our projections at the beginning of 2022, as an example, or whatever year it is. Here's what happened throughout the course of the year. These are our reconciled numbers of what actually occurred. And then how do we drive business decisions on that moving forward?

Or what variables impacted what went on in our farm operation or what went on in our business? And it, it takes a lot of time. I'll tell you right now, it's not, it's not an easy task to undertake. This is probably a skill set or a development project for someone that is either the manager or the owner, president, or CEO of the business. Uh, it, you know, parts of it can be delegated to other team members for sure, you know, whether it's the accounting piece or maybe if you have someone in charge of the HR side of things when it comes to personnel issues or opportunities that you have. Or someone that maybe handles the social media for doing the pictures and things like that. But it really forces you to compile all of the information and analyze it in a business professional manner.

So I had sent out a tweet about this and I thought it was kind of interesting, some of the feedback that I got. I think generally people were pleased with the idea or think that it's a good idea, something that you should be doing. I actually had a couple of people that I had not linked in with before that said, you know, this is great, I'd like to know more about how to do it. So I thought that I'd hop on here and, and just talk through kind of some of the principles that we like to cover as part of this. Also had people reach out and say, well, you know, what's the benefit of doing this? One comment that I had made in there is that we present this to lenders, we present it to owners and equity partners in the business, and then we also present it to the family. And the reason that I do this is just to keep everybody informed.

But the multiple lenders question came up a couple of times on, well, why, why do you have multiple lenders, or why would you present this to multiple lenders? And the first thing that I would say to that is, you know, first of all, it's really easy because you're already, you know, you have all this information put together, so you might as well share it with a few different people. And it's not, it's not because of price shopping. In full transparency, the lender that we work with in our farm operation is actually not the lowest interest rate, but they understand our business really well. They care about our business. They're poised to grow with us.. And that sometimes means more than just whatever the lowest interest rate is, particularly when we know that if we need something, we can go, we can call them, they're flexible, and they just have a really good understanding.

We also have a secondary lender that we work with for projects that might be outside of the traditional ag business space or things related to the farm operation in particular. This is I, I would say we, you know, we use it internally a little bit as a truth or ground check to the primary lender, but the primary lender knows this. I mean, everybody that we work with, whether it's primary, secondary, or lender on the bench, which I'll get to here in a minute, everybody knows that we do this, and it actually tends to elevate, uh, the, the services that they provide. It tends to elevate our relationship, and it tends to elevate the communication that we have. Because, well, I mean, these are the numbers. This is the reality of what we have going on in our business. So let's look at it from a 30,000-foot view. And then let's get really, really granular into the details.

And how can we make your farm operation, how can we make your ag business better than what it is today? And, you know, from their perspective, they say, well, how can we help you more? What can we be doing differently? What information do you need from us? The lender on the bench concept is something we've been talking about for many years. And we don't mean it, you know, lender on the bench as in we're benching you and you're going to sit there and we're never going to, you know, utilize you as a service. But what I would encourage you to think about, and I'll ask this question, then I'll repeat it. Do you do business with the bank that you work with, or do you do business with the lender and the people that are there? You know, truly, is it, is it the person that you interact with day to day Or is it the institution? And it's not a loyalty thing.

It's more so, you know, who understands your business. And if that person gets hit by the proverbial beer truck, or on a more optimistic note, maybe they win the lottery. If that person leaves that institution for whatever reason, one, is there a person that understands your business really well and can backfill their role? And two, Maybe they go to a different lending institution, or maybe something happens financially to that institution. You know, God forbid that happens, but how quickly can you be doing business at another bank or another lending institution if you're borrowing money? Is it a matter of days? Is it a matter of weeks? Or is it going to be a cluster trying to get all of your information transferred over, find a new lender, find someone that understands your business?

You know, the coaching and the training and the communication and the interaction that you've had for decades now, what happens if that rug gets pulled out from underneath your feet? So synergistically, all of them, uh, they've worked together. I, I've introduced a couple of them to each other so that they, you know, are fully transparent on the situation. And, you know, the final line item here is that it elevates what we do in our business, it elevates our communication, and elevates our interaction with them. So the second area, or another question that I got here was, you know, what else, or have you considered, you know, banking, banking with yourself, or, you know, looked at options on how do you self-fund? Yes, of course.

And I would encourage people that if you are currently either borrowing from yourself, borrowing from a parent operation, or looking at, you know, is there access to other funds that would be a better option than looking at a bank? Have you professionalized that area of your business? Have you explored all those options? And if you're currently doing that, is it done in professional— as professional of a manner as it should be? Meaning, if you have a legacy partner in the operation, they've been financially involved, and maybe they have the ability to lend you the money and you're doing an X percent interest rate, are you treating them as a business partner or are you formalizing that relationship or are you just going with the understanding of, oh, they're family, you know, mom and dad want to help us out. That's great. That's nice of them.

I would encourage you to maybe reevaluate that situation and say, you know, is this, is this a good option for everybody involved? And then also how do we handle that moving forward? So what else is included in this State of the Farm Address? Well, we do our, our yearly overview. We do our in-depth financial analysis, and then finally the projections for the year ahead. So in our operation, this includes cash flow. This includes our current balance sheet and changes in future balance sheets. We build out multi-year trend analysis to show equity growth, So assets, liabilities, and net equity. We look at, you know, what changes are we facing in the business and why might our cash flow be higher? We saw this for 2023. We've talked about it many times on the podcast. 2023 in our operation is the most expensive crop that we've ever put in. And, and that's okay.

You know, our margin, our, our margin is good. Our margin protection is good.. And so we feel like we have a good year ahead, but we need to help explain that situation, why it is the way that it is, and make sure that those that we're working with feel comfortable with the money that we're lending from them, and also making sure that we have the repayment capacity. And I hope this resonates with, with a bunch of you, and I know it does, uh, especially with the crowd that listens to this podcast, is so many of us are, uh, transitioning and growing at the same time, or we have multiple facets of our business that are changing really rapidly. Chris and I have been doing a speaking series for folks in the, in the ag industry here over the last couple of years. And it's called Staying Relevant in a Rapidly Evolving Industry.

And it's amazing how quickly some of these opportunities are coming at a lot of the ag businesses and farm operations that we work with. And how do we capitalize on them? You know, one, financially responsibly. Two, in an order of prioritization. And three, making sure that we don't get stretched too thin, because there is a bad time to grow, and sometimes you don't realize it until, uh, you know, it's in the rearview mirror. Hindsight's 20/20, right? So are you evaluating the metrics right now that you think would be appropriate for the growth that you're facing? And also, do the strategic resource partners that you're working with understand that? Pictures are great for this sort of presentation.

I think, as the saying goes, pictures are worth a thousand words, but it just adds more of a human touch so that you don't get bogged down in, you know, the balance sheets or your cash flow projections or whatever else. And I think You know, another thing is looking at the business from a 30,000-foot view to one thing that we've encouraged people to do is go through their history of their operation. So have you taken the time to map out, you know, how has our business changed over the last 3 years, 5 years, 10 years, and then several decades if your business has been around for that long? You know, how has it changed? It's a really useful exercise if you take 30 minutes even and just write down, okay, here's what happened in 1995, here's what we did in 2003, here's the growth that we experienced in 2011, here's the hardships that we faced in 2017.

That stuff matters, especially if you're working with new business partners or working with new lenders, because they need to help understand why you make decisions the way that you do and also what you need out of that relationship. Uh, this thing called heuristics is how you make decisions based off of your prior experience, off of your knowledge and off of your gut instinct. So you want to make sure that the business partners that you have are understanding of that situation and also that they know how to interact and handle you, uh, to be able to serve you best as, as a client in general. One other thing that I would add from the lending side right now that we've started to see more and more on, and I've had a couple people, you know, push back when we think about the strategic resource team Who, who are your business partners?

Is it your CPA, your attorney, your insurance agent, your lender, ag facilitator, retail providers, whoever's on your strategic resource team? And for some of those people like CPAs and attorneys and lenders, we get caught up in the mindset of thinking, well, I'm stuck with what I have close by. You know, there's not that many good lenders in western Minnesota. It's a rural area. And if you're from western Minnesota, and you're a rural lender, I'm not picking on you, I'm just using this as an example. However, 90% of the time, when we see a relationship that's either deteriorating, or not meeting the expectations of you as the client, so let's say you as the farmer, you as the ag business partner, person, in this situation, 90% of the time it's just unmet expectations. So have you clearly laid out to your lender, this is what I expect out of you?

You know, I want you to make time for our annual loan renewal. I want you to listen to the State of the Farm address. I want you to do an in-depth analysis of my financial numbers. If they don't know that they want— that you want them to do that, you can't expect that out of them. But if you communicate that clearly, they'll probably make the time and the effort. And if they, if they do at that point, and they're still not providing the service and value, I'm gonna say this lightly, but also directly, fire them. If you are working with people in your ag business that are not providing the value or the service that you need, or that you expect, have one chance to make sure that you're communicating clearly what your expectations are. And if they're not meeting that, fire them.

There's someone else that wants to do business with you and will work with you and can meet the expectations that you have. You're running multimillion-dollar businesses, and honestly, you don't have as many years as you might like to do it. You know, how many years do you have left doing this business? 10, 20, 30, 40? Who knows the situation that you're in necessarily, but even if you have 40 growing seasons, why would you spend 10 of those working with someone that you didn't want to work with when those might be some of the best years to grow your business or to expand, or, you know, however you define growth, you want to make sure that you have the right business partners on your side.

Another point here is a lot of the lending we've started to see go well beyond those rural areas, or even out of counties and out of state, on finding someone that will work with you and that understands your business. So if you're the person that's sitting there and saying, well, You know, we got one CPA and they're really good, but they're swamped because they're really good and every farmer wants to find them. You can find other good CPAs. You might have to pay for them, but what's it worth to you? Same thing for attorneys. If there's important business decisions in your transition planning or in your living trust, or as you do land deals, whatever it is, there are people out there that will get the work done. You just need to be prepared and willing to pay for them.

Or to travel or to think outside the box that, hey, maybe I need to be somewhere else, you know, even out of state or in a different area. Those trendline analysis that I talked about, the power of data organization is huge. So what data points and metrics in your business do you need to focus on that you can measure year over year that's going to drive action? You know, is it your assets, liabilities, and net equity? I think that's a really important one personally. Is it your cash flow? Is it how much money you're borrowing? Is it, you know, how you manage your line of credit throughout the year? Whatever those metrics are, whatever your trendline analysis is, maybe it's cost of production or input purchasing or growth trajectory, you know, build out those trendlines and start to paint the picture of how your business has changed over time.

And then also the also offer the forward projections on it. One of the most powerful things that the State of the Farm Address does in our operation is not just to look back at here's what happened in the last year. That's in the rearview mirror. There's lessons to be learned from that. And I think it's, it's important to take the time to address that. But what, what's it look like moving forward? What are we going to do differently? How do we grow our operation? How do we improve profitability? And I would take a fair amount of time to focus on those projections. Even if it changes drastically, you know, at the end of the presentation today, I was sitting here with Lender at the conference table and, you know, I just said, hey, I really appreciate you taking the time and looking at this. And he said, you know, this is great. I really appreciate the plan that you have moving forward.

And even if it changes, you know, all of this could change next week. You could have an opportunity fall into your lap. You could have something happen in your business that either grows your profitability or grows your— changes your outlook, or you decide that you need to spend money elsewhere. At least we have a plan. And that makes me feel really comfortable from the lending perspective. So take the time to build out what that future looks like, paint the picture, and then double down on the things that you're good at. So if you're good at crop production, double down on your crop production. If you're really good at analyzing the numbers, stay on that, make sure that you are doing the best job that you can to present again, back to the business owners, the equity partners, the lenders, your family, whoever it may be, The State of the Farm Address is huge.

You know, if you haven't done this in the past, I would highly encourage you to start putting a presentation together. Again, it takes a lot of time. I have 50— I'm sitting here looking at it— I have 50 slides in my presentation. I'm not saying it has to be 50 slides. Maybe it's, you know, 30 or 35 slides of good content that really paints the picture of your business. Have some handout and supplementary material. Meet up with your lender, consider having a secondary lender or a lender on the bench. And if there's other people that you need to share this information with, if you have equity partners, if it's a transitioning partner, maybe you're— maybe your kids need to know this, you know, non-involved family members that are going to be part of the estate if and when something happens to you.

You know, maybe it's important for them to sit down and understand, hey, here's the picture of the business that we're running, not just the farm operation. Here's the picture of the business that we're running. And we want to under— we want you to understand what our outlook is, and what our expectations are, and what we want to happen down the road. And here's how you're a part of this. So state of the farm, take your time to do it, organize yourself professionally, like any other business out there. I guarantee You won't regret it. You might lose some sleep over it. I'm sorry. Make some coffee. You can yell at me later. If you need any recommendations or want to learn more about the State of the Farm Address, if you like this podcast, you know, shoot me an email, shoot me a message. I'd be happy to connect with you.

Thank you for listening to another episode of the Ag View Pitch, and we will catch you next time.