The Production Risk Pillar

Production is what farmers know best. However, it never hurts to hear some needed advice from the experts.

Production risk exists in weather, in yield, in quality, in expansion of the farm operation, rotations, seasonality, government programs and more.

Watch Reg Shandro explain the production risk pillar of the ‘5 Pillars of Risk Management’.

For more information about production risk check out this excellent guide by Utah State University: Managing Production Risk in Agriculture
This workshop was funded in part by the Agriculture & Food Council of Alberta

 

The Secret to Farm Finance

Reg Shandro explains the secret to farm finance – how farmers typically look at the cash flow situation on their farm, and how they really should be looking at it.

Farmers typicaly look at cash flow as a lake or a river.

Looking at cash flow as a “lake”, the farmer thinks ‘I have lots of assets and lots of networth, so what’s the problem?’.

Looking at cash flow as a river, the farmer thinks in terms of cash coming into the farm business and cash going out of the business.

Watch the video to find out the secret to farm finance and how the bank wants you to look at cash flow on your farm.

This workshop was funded in part by the Agriculture & Food Council of Alberta

 

The 6 Financial Options on Your Farm

What are the financial options for your farm?

Reg Shandro boils it down to 6 distinct areas where your farm businesscan get revenue from.

1. Surface right revenues;

  1. Inheritance or lottery;
  2. New borrowing or restructuring debt;
  3. Sale of Assets;
  4. Off Farm income;
  5. On farm income;Take a look at which ones are within your control, I bet it’s fewer than you’d think.

    If you’d like to follow along in figuring our the 6 financial options for your farm, you’ll need:

    1. A piece of paper divided up like in the video;

    2. A red pen and green pen;

    Watch the video to figure out how to do the rest!

This workshop was funded in part by the Agriculture & Food Council of Alberta

 

 

Managing the Market Risk on Your Farm

Watch Reg Shandro explain how to manage market risk on your farm.

Managing market risk can look like black magic to anyone who doesn’t understand it. That’s where hiring a professional comes in but there are some basics you should understand as the decision maker in your farm business.

For further resources, please read the information in the “download” section on the right of your screen.

This workshop was funded in part by the Agriculture & Food Council of Alberta

 

Managing the Legal Risks in Your Farm Operation

‘Legal & Organizational Risk’ is one of the ‘5 Pillars of Risk Management’, as explained by expert Reg Shandro.  It’s an area that many of us avoid but you don’t have to be a lawyer to understand its importance.

What risks exist within the legal structure of your farm? One of the most important risks to look at, in terms of legal risks, is safeguarding your assets. Get legal help to learn what you can do to protect your farm business assets.

For further resources, please read the information below or in the “download” section on the right of your screen:

Legal Organizational Structure for Your Farm Business
This workshop was funded in part by the Agriculture & Food Council of Alberta

 

Is Your Farm Operation Over-Capitalized?

Another component of financial risk is over-capitalization.

You have to understand what part of your operation is capitalized and what part is focused on producing revenue assets. This ratio is called the turn-over ratio – for every 1 million dollars of assets – what percentage is turning over into gross-revenue every year. A great target is $400,000 or 40%. This money is what you use to pay off your debt, pay yourself, and feed your family.

Watch Reg Shandro explain how to find out whether your farm operation is over-capitalized.

If you’d like help with your financial analysis, download the Agricultural Business Analyzer.
This workshop was funded in part by the Agriculture & Food Council of Alberta


Is your Farm Operation Over-Capitalized?

 

Introduction to the Financial Risk Pillar of Your Farm Operation

As a farmer, you need to understand your farm finances in your operation so that you can mitigate risk.

There are three main things that you should be aware of:

  1. Profitability:The first thing to understand is whether your farm business is profitable. You need to be able to make an operational profit, or you cannot farm. It’s as simple as that.2. Assets: Number two is that you need to protect your assets.

    3. Role as a farmer: Number three is that you need to clarify your job as a farmer. We sometimes confuse what we like to do, with our role as a farmer. However, “like” doesn’t feed your family.

    There’s a rural myth that by working hard, you’re making money. However, it’s essential to take a step back from the hard work, and really try and understand your numbers. Think about it this way – would you ever accept the terms of conditions of employment, in which you work all year and then pay your employer money to have that job?

    WatchReg Shandro introduces the financial risk pillar of the ‘5 Pillars of Risk Management’ and tell you what to look out for.

    This workshop was funded in part by the Agriculture & Food Council of Alberta

 

Introduction to Risk Management on Your Farm

When you’re a business person farming you know that you’re not in a riskless business. Risk is a four letter word but there are many things that can assist you in managing these risks.

There are 5 pillars of risk which you need to understand in order to successfully manage your farm business. You need to be able to understand them both separately and together. The 5 Pillars of risk on your farm are:

1. Market Risk;

2. Legal Risk;

3. Human Resource Risk;

4. Financial Risk; and

5. Production Risk

Warren Buffet once said that when making a decision with regards to your business, you shouldn’t be asking yourself how much money you can make,  but instead you should ask how much money you can lose. This change in mindset is important when evaluating the risk on your farm business.
This is an introduction video for the “5 Pillars of Risk Management”series. Watch Reg Shandro explain what risk management is and what you can do to minimize risk in your agricultural business.

For further introductory notes, please refer to the following resources:

OECD: Risk Management in Agriculture

Managing Risk in Agriculture: A Holistic Approach

Managing Risk in Agriculture (Purdue University)
This workshop was funded in part by the Agriculture & Food Council of Alberta

 

How to Understand Your Farm Operation’s Working Capital

 

Working capital = your current assets MINUS your current liabilities (what you need to pay off in the next year)

It’s a representative of your ability to weather your short term commitments. Different farms (with different focuses, for eg. wheat vs. dairy) will have different working capital expectations.

By rule of thumb, you should have 25% of next-years expenses sitting in working capital. So, if you have 1.25 million dollars of assets sitting there in cash or inventory and you have 1 million dollars of expenses next year, then you will have a $250,000 buffer to allow for some breathing room for next-years expenses. If your farm has no breathing room, you’ll have to have a plan for what will get you through the down curve, or unexpected events in your farming production.

Watch Reg Shandro shares a few simple tips to take a look at how your capital is working for you.

This workshop was funded in part by the Agriculture & Food Council of Alberta

 

How to Boost Your Farm Business with an All-Star Advisory Team

Do you want a huge boost to your farm operation? Here’s a great tip: get all of your agriculture advisory professionals together in a meeting to share their oprinions and strategies for your farm business.

This means getting your accountant, banker, insurance agent, investment advisor, vet, lawyer and so on, together at the table. We know this is pricey but there’s tremendous value a meeting like this could have for your farm business.
Reg Shandro explains why it’s important to have an advisory team for your farm business operation.

This workshop was funded in part by the Agriculture & Food Council of Alberta