Hampton-Knodle shares agribusiness lessons learned through experience
In early April, American Agri-Women First Vice President and Illinois farmer Heather Hampton-Knodle spoke during the American Agri-Women Essential Farm and Ranch Business Management Skills Webinar Series on business management and bookkeeping consideration for beginning producers.
“I’m coming to women as a peer to share some lessons I’ve learned over time. We’re going to demystify some of the jargon that comes with business and talk about some resources available to beginning producers,” she said.
“Cash flow is the total amount of money being transferred into and out of a business, especially as it affects liquidity,” commented Hampton-Knodle, noting that liquidity is the availability of cash.
According to Hampton-Knodle, land is not necessarily a liquid asset because there may be a large tax consequence.
A balance sheet is a statement of assets, liabilities and capital over a defined time, usually a year.
She explained that assets can be broken down into current or non-current, as well as intangible and tangible.
“An example of an intangible asset would be a copyright,” Hampton-Knodle said. “Tangible assets are things like vehicles, buildings and inventories.”
Current assets are items producers are expecting to consume in one year, such as feed. Non-current or long-term assets are expected to be productive for the business during more than one year.
Hampton-Knodle defined a liability as a binding obligation that is payable to another entity
“Long-term liabilities are settled through the transfer of cash or other assets in terms longer than one year,” she commented.
“One factor bankers are really going to look for is our debt-to-asset ratio, which is total farm liabilities divided by total farm assets,” said Hampton-Knodle.
The calculation comes out as a percentage, which is then assessed to determine position in a lending agreement.
“If we come out in the less than 30-percent range, we’re in a very strong position,” she continued.
In the 30- to 70-percent range, producers are considered stable. Hampton-Knodle noted that a producer’s strength in this range will vary greatly depending on the region they’re in.
“Bankers may be more willing to take a risk on someone in the 70-percent range if there is a variety of businesses in the area versus more of a homogenous area where there’s a lot of the same business going on,” Hampton-Knodle explained.
A weak lending position would be a debt-to-asset ratio greater than 70 percent.
According to Hampton-Knodle, numerous resources are available online for beginning farmers and ranchers.
She explained that USDA has a new farmers website, which can be found at newfarmers.usda.gov, that features an assistance program discovery tool.
“It asks several different questions, and we can learn about the different programs we can qualify for,” Hampton-Knodle said.
Hampton-Knodle commented that oftentimes, assessing the market is the most challenging aspect of agricultural businesses.
“Ultimately, it comes down to knowing our market. Maybe in the place we’re at, people don’t have the disposable income or the shopping patterns to look for our product, and we’ll have steeper roads to climb,” she continued.
To assess local market patterns, Hampton-Knodle suggested producers look at local census data, found at census.gov/data. Local economic development organizations at the local, regional and state level can also be extremely helpful.
She continued, “A program called Market Maker is a super resource to tap into. It helps us identify specific buyers or suppliers of products in the food industry.”
Market Maker can be accessed online at foodmarketmaker.com.
The Small Business Administration (SBA) also has resources for producers in the business planning process.
“SBA has some good resources at sba.gov/starting-business/write-your-business-plan/market-analysis,” she commented.
When looking at financial management strategies, Hampton-Knodle advised, “Getting a very good accountant makes life so much easier.”
She explained that many programs are available to farmers and ranchers for finance management.
When choosing what program to use, Hampton-Knodle first suggested joining an association for the product specialization chosen.
“Then, ask staff what accounting programs they recommend,” she said. “Ask fellow members in the organization what accounting programs they would recommend.”
Land-grant university business programs are another excellent resource when choosing financial software.
Depending on a producer’s situation, the benefits of being involved with a cooperative to provide investors with information comparing an operation’s production to others in the group should be considered.
“We need to determine if we want to be part of a larger pool to provide analysis and if it’s worth it,” Hampton-Knodle concluded.
Emilee Gibb is editor of Wyoming Livestock Roundup and can be reached at firstname.lastname@example.org.