FARM BUSINESS MANAGEMENT

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FARM BUSINESS MANAGEMENT

• TRI-CO. YOUNG FARMER ORGANIZATION

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SOURCES OF FARM CREDIT

• FULL SERVICE BANKS
• FARM CREDIT CO-OP
• RURAL ECONOMIC AND COMMUNITY DEVELOPMENT
• GEORGIA DEVELOPMENT AUTHORITY
• INSURANCE COMPANIES
• AGRIBUSINESS INSTALLMENT PLANS

3
QUALIFICATIONS NEEDED FOR LOANS

• CHARACTER
• CREDIT HISTORY
• COLLATERAL
• CAPACITY TO REPAY
• CAPITAL AT RISK BY BORROWER AND CONDITION OF
  BALANCE SHEET
• COMPLETION OF A LOAN APPLICATION

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GETTING ALONG WITH YOUR LENDER

• MAKE APPLICATION WELL IN ADVANCE
• HAVE YOUR RECORDS IN ORDER
• KEEP YOUR LENDER INFORMED ALL YEAR
• DO YOUR PART TO MAINTAIN GOOD RELATIONS

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GOVERNMENT PROGRAMS

• CONSERVATION PROVISIONS OF THE 1996 FARM BILL
• (HANDOUT)
• ABBREVIATIONS OR ACRONYMS
• (HANDOUT)
• NEW FARM BILL BEING WRITTEN

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APPLYING FOR A LOAN

• FINANCIAL STATEMENT
• BALANCE SHEET, NET WORTH
• ANNUAL CASH FLOW STATEMENT
• HISTORICAL PROJECTED PERIOD
• INCOME STATEMENT
• PROFIT LOSS STATEMENT
• REVENUES EXPENSES NET INCOME

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A BALANCE SHEET IS

• A SNAP SHOT OF YOUR BUSINESS

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WHEN DO I COMPLETE A BALANCE SHEET?

• ANYTIME
• WHEN MAKING A BUSINESS DECISION (PURCHASE OF
  EQUIPMENT, LAND, ETC.)
• ON THE LAST DAY OF THE ACCOUNTING PERIOD FOR
  YOUR BUSINESS

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WHY COMPLETE A BALANCE SHEET?

• GIVES FINANCIAL STRUCTURE OF THE BUSINESS
• INSIGHT INTO BUSINESS LIQUIDTY
• PART OF A LOAN APPLICATION
• TAX PURPOSES
• USED TO DOCUMENT FINANCIAL POSTION TO OUTSIDE
  PARTIES

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WHY COMPLETE AN ANNUAL CASH FLOW STATEMENT?

• GIVES A PICTURE OF YOUR LAST PRODUCTION PERIOD
• GIVES YOU AN OPPORTUNITY TO PROJECT YOUR PLANS
  FOR THE COMING PRODUCTION PERIOD

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WHY COMPLETE AN INCOME STATEMENT (PROFIT LOSS)?

• GIVES A MORE ACCURATE PICTURE OF NET INCOME
• USES THE ACCRUAL BASIS FOR PROJECTING NET INCOME
• ANY TRANSACTION WHICH INCREASES OWNER EQUITY IS
  INCOME AND ANY TRANSACTION THAT DECREASES EQUITY
  IS AN EXPENSE.

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RISK MANAGEMENT

• Its A Whole New Ball Game!

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Risk has always been a part of agriculture. But,
farming in America is a ball game that has
changed dramatically over the past few years.
Increasingly, farmers and ranchers are learning
that it is now a game with new rules, new stakes,
and most of all, new risks
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The nations most successful farmers are now
looking at a deliberate and knowledgeable
approach to risk management as a vital part of
their game plan. For them, risk management means
farming with confidence in a rapidly changing
world. It is the ability to deal with risks that
come with new, attractive farming opportunities.
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FARMING HAS FIVE PRIMARY SOURCES OF RISK

• PRODUCTION
• MARKETING
• FINANCE
• LEGAL
• HUMAN RESOURCES

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MAJOR SOURCES OF PRODUCTION RISKS

• WEATHER
• PESTS
• DISEASES
• MACHINERY EFFICIENCY
• QUALITY OF INPUTS
• INTERACTION OF TECHNOLOGY WITH OTHER FARM AND
  MANAGEMENT CHARACTERISTICS

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CAUSES OF CROP LOSS
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RISK MANAGEMENT STRATEGIES TO LOWER PRODUCTION
RISKS

• ENTERPRISE DIVERSIFICATION
• CROP INSURANCE
• CONTRACT PRODUCTION
• POULTRY
• LIVESTOCK
• NEW TECHNOLOGIES
• GENETICALLY ALTERED SEED
• PRECISION FARMING

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MARKETING IS THAT PART OF YOUR BUSINESS THAT
TRANSFORMS PRODUCTION ACTIVITIES INTO FINANCIAL
SUCCESS.
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REDUCING MARKETING RISKS

• DEVELOP A MARKETING PLAN
• THE GOALS AND OBJECTIVES OF YOUR BUSINESS SHOULD
  DRIVE THE MARKETING PLAN.
• KNOW YOUR PRODUCTION COSTS.
• USE ENTERPRISE BUDGETS
• KEEP GOOD RECORDS
• DETERMINE BREAK EVEN PRICES

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REDUCING MARKETING RISKS CONTINUED

• EXHIBIT MARKETING PLAN DISCIPLINE
• HAVE A CONTINGENCY PLAN
• PRICES MAY BE LOWER
• YIELDS MAY NOT BE AS GOOD AS EXPECTED
• LEARN AND USE MARKETING TOOLS
• STORAGE
• CASH SALE

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MARKETING TOOLS CONTINUED

• DEFERRED PAYMENT CONTRACTS
• BASIS CONTRACT
• DELAYED PRICE CONTRACT
• HEDGING
• PUTS AND CALLS
• MARKETING COOPERATIVES
• DIRECT SALES
• CONTRACT PRODUCTION

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FINANCIAL RISK HAS THREE BASIC COMPONENTS

• THE COST AND AVAILABILITY OF DEBT CAPITAL
• THE ABILITY TO MEET CASH FLOW NEEDS IN A TIMELY
  MANNER
• THE ABILITY TO MAINTAIN AND GROW EQUITY

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LOWERING FINANCIAL RISKS

• MAINTAIN GOOD FINANCIAL RECORDS
• KEEP AN EYE ON INTEREST RATES
• ENSURE LIQUIDITY AND ADEQUATE CASH FLOW
• BUY CROP, LIABILITY, AND PERSONAL INSURANCE
• CONTROL FAMILY LIVING EXPENSES

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LEGAL ISSUES ASSOCIATED WITH AGRICUTURE

• STRUCTURAL ISSUES
• SOLE PROPRIETORSHIP
• PARTNERSHIPS
• CORPORATIONS
• CONTRACT ARRANGEMENTS
• LEASES, NOTES, MORTGAGES
• GOVERNMENT FARM PROGRAMS

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LEGAL ISSUES CONTINUED

• STATUTORY OBLIGATIONS
• TAX REPORTING
• SAFETY REQUIREMENTS
• USE OF PESTICIDES
• TORT LIABILITY
• INJURY TORT
• TOXIC TORT
• ENVIRONMENTAL LIABILITY

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HUMAN RESOURCE ISSUES

• MANAGING PEOPLE
• HIRING, JOB DESCRIPTIONS
• ORIENTATION AND TRAINING
• EMPLOYER/EMPLOYEE INTERACTION
• PERFORMANCE APPRAISAL
• COMPENSATION
• DISCIPLINE
• WILLS ESTATE PLANNING

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AG LAW

• WRITTEN VERSUS ORAL AGREEMENT
• HANDSHAKE TO CLOSE A DEAL

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WHAT IS A CONTRACT?

• A CONTRACT IS A LEGALLY ENFORCEABLE ARRANGEMENT
  OR AGREEMENT BETWEEN TWO OR MORE PARTIES.

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TYPES OF CONTRACTS

• EXPRESSED
• PARTIES STATE THE TERMS OF THE CONTRACT ORALLY OR
  IN WRITING
• INFERRED
• THE ACTIONS OR CONDUCT OF THE PARTIES INDICATE AN
  INTENTION TO CONTRACT.

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ELEMENTS OF A CONTRACT

• TWO OR MORE PARTIES
• LEGAL CAPACITY TO ACT, MENTALLY COMPETENT, LEGAL
  AGE
• OFFER AND ACCEPTANCE
• SUFFICIENT CONSIDERATION
• MONEY, GOODS, PROMISE FOR A PROMISE
• MUST NOT OFFEND PUBLIC POLICY OR MORALS

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LEASES AND LEASING

• LEGAL AGREEMENTS LANDOWNERS AND FARM OPERATORS
  USE TO DO BUSINESS.
• ABOUT 1.5 MILLION LANDOWNERS AND FARMERS IN THE
  U.S. DEAL WITH LEASING EACH YEAR.

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MOST COMMON KINDS OF FARM LEASES

• CASH
• SHARE
• MANAGER OPERATOR OR PARTNERSHIP (SOMETIMES CALLED
  PROFIT SHARING)

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LEGAL LIABILITIES OF FARMERS AND RANCHERS

• LAWS CAN AFFECT A FARMER OR RANCHER MORE THAN THE
  AVERAGE CITIZEN
• PROPERTY MAY BE TAKEN BY THE COURTS TO PAY FOR AN
  INJURED PARTY
• NEED LIABILITY INSURANCE
• REDUCES RISK BY SUBSTITUTING A SMALL, REGULAR
  PAYMENT FOR A LARGE UNCERTAIN PAYMENT

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NEGLIGENCE

• IN MOST CASES LIABILITY DEPENDS ON NEGLIGENCE
• BEFORE A FARMER CAN BE HELD LIABLE THERE MUST BE
  A NEGLIGENT ACTION OR LACK OF ACTION ON HIS PART
• ALSO TRUE FOR EMPLOYEES ENGAGED IN WORK ON THE
  FARM

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DEFINITION OF NEGLIGENCE

• THE OMISSION BY AN INDIVIDUAL TO DO SOMETHING
  WHICH A RESPONSIBLE PERSON WOULD DO UNDER
  SIMILAR CIRCUMSTANCES
• FAILURE TO USE REASONABLE CARE UNDER THE
  CIRCUMSTANCES

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EXAMPLES OF NEGLIGENCE

• FAILURE TO REPAIR A HOLE IN THE BARN FLOOR
• NOT KEEPING FENCES IN GOOD REPAIR SO LIVESTOCK
  CAN ROAM FREE
• FAILURE TO COVER AND MARK AN OPEN WELL

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DUTIES TOWARD PEOPLE OR PROPERTY ADJACENT TO YOUR
LAND

• MUST EXERCISE REASONABLE CARE TO PREVENT INJURY
  OR PROPERTY DAMAGE TO A NEIGHBOR

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DUTIES TOWARD PEOPLE ON THE LAND

• THREE GROUPS
• INVITEES
• LICENSEES
• TRESPASSERS

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INVITEES

• A PERSON WHO IS ON YOUR FARM WITH YOUR CONSENT
  AND FOR YOUR BENEFIT OR FOR YOUR MUTUAL BENEFIT
• A PERSON BUYING HAY OR RYE SEED
• A HUNTER WHO PAYS TO HUNT

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RESPONSIBILITIES TO INVITEES

• DUTY TO WARN OF KNOWN HIDDEN DANGERS
• LIABLE FOR ANY INJURIES FROM THESE KNOWN HIDDEN
  DANGERS
• HAVE DUTY TO INSPECT YOUR PROPERTY FOR HIDDEN
  DANGERS
• FEED DELIVERY PERSON FALLS THROUGH A ROTTEN BOARD
  IN YOUR BARN

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LICENSEES

• SOMEONE WHO COMES ONTO YOUR LAND SOLELY FOR THEIR
  OWN PLEASURE, BENEFIT, OR CONVENIENCE
• SOMEONE WHO HAS PERMISSION TO HUNT BUT DOES NOT
  PAY A FEE
• DELIVERY PERSON MAKING A PERSONAL PHONE CALL

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RESPONSIBILITIES TO LICENSEES

• A LICENSEE HAS A LEGAL DUTY TO BE ON THE LOOKOUT
  FOR DANGERS
• IF THEY ARE CARELESS THEN THE FARMER IS NOT
  RESPONSIBLE
• FARMER HAS TO WARN OF ANY HIDDEN DANGERS
• DO NOT HAVE TO MAKE LAND SAFE OR INSPECT FOR
  DANGERS

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TRESPASSERS

• SOMEONE WHO IS NEITHER INVITED OR DESIRED ON YOUR
  LAND

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RESPONSIBILITIES TO TRESPASSERS

• YOU ARE ONLY LIABLE FOR PERSONAL INJURIES IF YOU
  INTENTIONALLY INFLICT THEM.
• WIRE ACROSS ROAD
• NO DUTY TO MAKE LAND SAFE, WARN OF HIDDEN
  DANGERS, OR INSPECT LAND FOR DANGERS
• MAY USE REASONABLE FORCE TO REMOVE A TRESPASSER.
• NO DEADLY FORCE UNLESS FAMILY OR LIFE IS
  THREATENED

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WHEN A TRESPASSER BECOMES A LICENSEE

• IF SEE A TRESPASSER AND DO NOT ASK TO LEAVE
  PROPERTY
• THEY ARE NO LONGER A TRESPASSER
• THEY HAVE IMPLIED PERMISSION TO BE THERE
• MAY BE LIABLE FOR ANY PERSONAL INJURIES FROM
  HIDDEN DANGERS THAT YOU KNOW OF

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DOCTRINE OF ATTRACTIVE NUISANCE

• YOUR RESPONSIBILITY TO CHILDREN IS GREATER THAN
  FOR ADULTS
• IF YOU NEGLIGENTLY KEEP AN OBJECT OR CONDITION ON
  YOUR LAND THAT IS ATTRACTIVE AND DANGEROUS TO
  CHILDREN, YOU WILL BE LIABLE FOR INJURIES

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EXAMPLES OF ATTRACTIVE NUISANCES

• OLD TRACTORS
• PLOWS
• COMBINES
• BUILDINGS UNDER CONSTRUCTION
• PILES OF LUMBER
• POSTS
• OLD REFRIGERATORS

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NO TRESPASSING SIGNS

• DO NOT COMPLETELY RELEIVE LANDOWNER OF
  RESPONSIBILITY
• IF CHILDREN ARE INVOLVED, SIGNS SELDOM PROTECT
  THE LANDOWNER
• SOMEONE WHO CAN NOT READ
• SOMEONE WHO DOES NOT SEE THE SIGN

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INJURIES TO EMPLOYEES

• YOU CAN PREVENT SUCCESSFUL LAW SUITS BY EMPLOYEES
  BY MEETING YOUR RESPONSIBILITIES AS AN EMPLOYER
• GUARDS AND SHIELDS IN PLACE
• TRAIN EMPLOYEES THOROUGHLY
• WARN AGAINST ANY DANGERS
• RESONABLE RULES OF CONDUCT

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LIVESTOCK AND FENCES

• IN MOST STATES, A LIVESTOCK OWNER WHO MAINTAINS
  GOOD FENCES, IS NOT LIABLE FOR DAMAGE CAUSED BY
  LIVESTOCK
• OWNER NOT AWARE OF ANIMALS THAT BREAK OUT
• MUST MAKE ATTEMPT TO CAPTURE ANIMALS IMMEDIATELY