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Weathering Tough Times: Managing the Business Situation
Keeping Your Family First
The summer's hot and dry weather is leaving it's mark, not only in the pastures and fields, but in the dramatic decease in potential income for rural residents. As the season has progressed, it has become increasing clear that even the best business contingency plans could not have envisioned this situation.
If you have been in the farming or ranching business for several years you realize that periodically the weather will throw you a "curve ball". Too much rain, too little rain, temperatures that are too cold or too hot, are all a part of the enduring Nebraska weather that we lovingly joke about at the local café. This love/hate relationship has at least one redeeming quality... it has historically forced agri-business owners in Nebraskans to manage the effects of weather in creative ways.
The first step in management is to estimate where you are financially. Granted, the cash-flow and financial statement that you projected in January for your lender might look like "mission impossible" at this time of the year, but at least the projection gives you a starting point or baseline. An important component of these documents is the estimation of gross income... and this year it will be an exceptionally challenging task. You might try a variety of scenarios to see how each aspect impacts your bottom-line by changing yields, market weights, and input costs, as well as other relevant variables. Sometimes your "best guess" is the most appropriate number to use. Don't forget to include USDA Farm Service Agency payments as well as any other non-crop or livestock income. These will undoubtedly be a significant portion of income this year. The phrase, "it isn't over till it's over" is also important to remember. The weather is not the only thing that is fickle. Domestic and global supply/demand, the stock market, and international tensions all play a part in the agricultural marketplace.
The second step is to look objectively at your financial estimates and re-evaluate your business goals. Short-term goals often surface causally in conversations with family and friends. These conversations might focus on what piece of equipment needs to be updated or in the potential purchase of livestock or rental of land. Long-term goals are often less specific and harder to pin down but both may need to be reexamined this year. Realistically looking at goals and financial estimates early will keep your business as flexible and liquid as possible, even in challenging times. The earlier this is done the more options you have available and ultimately the less pressure you put on your business and your family.
And finally, the third step is to communicate with your lender. Lenders see the pastures and crops and feel the stress of the season as much as agricultural producers. They need to be kept in the communication loop. The more information they have about your business, the easier it is for them to work with you in the future.
These three steps: periodically estimating your businesses profit and loss, re-evaluating your goals, and communicating with your lender, are tried and true business management tactics. In good years and in bad, these practices will help you manage whatever "Mother Nature" has in store.
- Dr. Cheryl Burkhart-Kriesel, Community & Economic Development Specialist, University of Nebraska Pandhandle Research & Extension Center
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