Marsh: Fail to plan kills business
Casper – The West Central States Wool Growers came together in Casper the weekend of Nov. 8, focused on networking within the sheep industry and learning about the latest in the agriculture industry to improve their operations.
With extensive experience on the business side of the agriculture industry, Micahel Marsh of the National Council of Agriculture Employers gave the keynote presentation at the event.
Marsh, who works with many agricultural employees across the country, was raised in Lingle and earned degrees in history and law school before he became a Certified Public Accountant (CPA).
“In public accounting, I got involved in forensic investigation and fraud,” he said, noting he got involved in the agriculture industry, as well, working as Chief Financial Officer for several large agriculture organizations, including the largest dairy organization.
Focusing on the details of running a thriving business, Marsh told wool growers, “If we fail to plan, we plan to fail.”
“A business plan is multi-purpose, but first, it has to be a guide for management to make their decisions,” he said. “It helps to focus on making specific objectives and goals.”
In addition, the plan can be helpful at the bank as producers are working with their bankers to secure working capital.
“We want to use the plan to anticipate what it is our banker wants to know. We have to figure out how much money we need and how we’re going to pay it back,” he explained.
The plan begins by assessing assets and liabilities, while also looking at anticipated expenses and revenues, to figure out payback.
“If we calculate that and have it ready to put in the plan, it is helpful,” Marsh said.
However, financial planning involves answering challenging questions.
“I worked with a guy who mislead his banker,” Marsh said, noting the man narrowly avoided prosecution for bank fraud and prison. “We have to be credible to what we put into the plan.”
Marsh also said it can be difficult to estimate anticipated rates of future cash flows. Use of hedging tools, for example, can help to provide those estimates, but he said it is impossible to account for all possibilities.
“Nobody has a crystal ball, and we can never take into account all the Acts of God that might impact agriculture,” he said. “But we can try our best to determine what future cash flows might look like.
When analyzing cash flow, Marsh also encouraged producers not to forget expenses related to investing in the operation.
“If we do all this really good planning and we’re cash flowing well, but we let the place go, it won’t work over the long-term,” he said. “We have to put some money back into the place.”
Marsh noted that saving during the best times allows producers to cash flow lean times.
Why we operate
An important part of the operation should also include a mission statement, which is included in the business plan.
“It’s hard to take time out of our busy days to really think about things like a mission statement, but we need to take some time to figure out what we’re doing and why we’re doing it to make sure it aligns with the future,” he said.
Next, clear objectives and goals should be established. Goals should be specific and measurable.
“We put key performance indicators in many business plans to actually measure what we’re doing and how we compare to our plan,” Marsh added.
He continued, “Our goals should also be attainable. If our goals aren’t attainable, we’re spitting into the wind.”
Lastly, Marsh said goals should be rewarding, offering something positive for producers to pursue.
One of the most challenging pieces of a business plan is the critical look that producers must take to ensure they are accurate and honest.
“It’s tough sometimes, but we need to really be critical in determining our profitability,” Marsh said.
When looking at cost of labor, for example, Marsh said producers must also include cost of management because farmers and ranchers spend so much time and energy in their businesses.
“Keep a focus on operating expenses and make sure to be critical and include everything,” he commented, listing cost of management, cost of pasture and cost of repair. “With our fixed cost, we need to include depreciation and interest. We will need to replace things as they age, so keep them in mind.”
“We have to continue to invest and continue to grow,” Marsh commented. “If we stop growing, we won’t keep up with the competition.”
Marsh encouraged ranchers to take advantage of opportunities as they arise, whether that be in purchasing new real estate of building the operation, to capture value.
A number of templates are available in business planning, and Marsh said producers should find the one that works best for them.
Most important piece
“There is one last part of our business plan that many templates leave out,” Marsh noted, “but this is the most critical component of our plan. A lot of us in ag don’t like to do this.”
He continued, “There is one certainty in life – we’re not going to be here into the future.”
Estate planning and succession planning is absolutely critical, he mentioned.
“We’ve got to think about this,” Marsh said. “We need to talk to our CPA and our attorney to avoid probate and make sure our estate is set up.”
If producers forget about estate planning, Marsh said they have to ask themselves, “What happens to the legacy we have built over years when we’re no longer here? Take that into account.”
Saige Albert is managing editor of the Wyoming Livestock Roundup. Send comments on this article to email@example.com.