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Presentation Outline Technical Orientation NGFN Overview - - PowerPoint PPT Presentation

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An NGFN W An NGFN Webina binar THE ONE-PAGE RISK MANAGEMENT PLAN March 28, 2013 Presentation Outline Technical Orientation NGFN Overview Simplified Planning for Complex Problems Gary Matteson Farm Credit Council Tyler

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THE ONE-PAGE RISK MANAGEMENT PLAN

An NGFN W

An NGFN Webina binar

March 28, 2013

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Presentation Outline

Technical Orientation

NGFN Overview

Simplified Planning for Complex Problems

Gary Matteson

Farm Credit Council

Tyler Matteson

Farm Credit East

Questions and Answers

Upcoming Opportunities, etc.

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The Farm Credit Council

Simplified Planning for Complex Problems

Gary Matteson, Farm Credit Council Tyler Matteson, Farm Credit East

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The Farm Credit Council

“95% of managing risk is common sense and checking your sources

  • n the internet.”

Ab Abrah raham Linc am Lincol

  • ln
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The Farm Credit Council

define success

enough net profit to meet your goals for your family and your business

In terms of risk management success does not mean:

“Risk free” Lots of insurance Beating your paranoia

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The Farm Credit Council

  • Keep records
  • Manage complications
  • Plan for uncertain future

know your business

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The Farm Credit Council

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The Farm Credit Council

know your business

what is your #1 cost?

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The Farm Credit Council

.

Heirloom tomatoes labor 76%

http://www.agmrc.org/business_development/business_workbench/business_ worksheets_and_calculators/enterprise_budgeting_tools.cfm

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The Farm Credit Council

know the risks you face, face the risks you know If labor is the #1 cost…

…it is likely to be the #1 risk

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The Farm Credit Council

the process of managing risk

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The Farm Credit Council

Identify: the risks on your farm Prioritize: what has the biggest impact? Evaluate: what tools can I use? Select: what strategy do I use to mitigate? Review: how did the strategy work? the process of managing risk

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The Farm Credit Council

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The Farm Credit Council

know the risks you face: Manage the risk

  • Liability: your capacity to cause harm to others

various insurances to share the risk

  • Access to land: no place to grow crops

establish rental and buyout agreements

  • Facilities: broken or inadequate equipment

regular repairs, planned replacement

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The Farm Credit Council

know the risks you face: Manage the risk

  • Input cost risk: unplanned increase in cost of supplies

pre-buy supplies or contract

  • Market risk: you can’t sell what you’ve produced

mix of market channels, contract, buy time

  • Interest rate risk: increased cost of borrowing money

manage use of short term and long term debt

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The Farm Credit Council

facing the risks you’d rather not…

Plan for who does what when something goes wrong also known as:

  • Operational succession plan
  • Organizational chart
  • Labor utilization plan
  • Depth chart
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The Farm Credit Council

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The Farm Credit Council

Sample Organizational Chart

Owner/ Operator

1. 2.

Spouse/ Business Partner/ Relative

1. 2.

Key Man/ General Manager

1. 2.

Field workers

1. 2. 3.

Delivery driver

1. 2. 3.

Key vendors

1. 2. 3.

Customers

1. 2. 3.

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The Farm Credit Council

examples of when you need an organizational chart:

  • Operator disability, death, divorce
  • Death or disability of key employee
  • Termination of any employee
  • Employee absence
  • Employee promotion
  • Owner or employee vacation
  • Business expansion
  • Special marketing event
  • Peak harvest
  • Weather catastrophe
  • Defining middle management’s personnel responsibilities
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The Farm Credit Council

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The Farm Credit Council

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The Farm Credit Council

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The Farm Credit Council

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  • ur plan for owner absence
  • Identify: the risks on your farm

– Tyler broke his leg, out 12 weeks

  • Prioritize: what has the biggest impact?

– Need to replace his labor

  • Evaluate: what tools can I use?

– Operation succession plan, disability insurance, safety audit

  • Select: what strategy do I use to mitigate?

– In this case, all

  • Review: how did the strategy work?

– Let’s find out…

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The Farm Credit Council

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  • rganizational chart for

Tyler’s Tip-Top Tomatoes

Tyler: Owner/ Operator Sarah: Supportive spouse Charlie: Key Man Charlie’s cousins Charlie’s cousins Key vendors Customers

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The Farm Credit Council

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The Farm Credit Council

financially speaking

  • Additional labor (cousins) cost $8400 for the 12-week period
  • No change in Charlie’s labor cost, Sarah donates her time
  • Disability insurance payment of $400/ week

Budget Absence % diff Sales $275,000 $269,500

  • 2%

COGS $165,000 $173,400 5% Gross Margin $110,000 $96,100

  • 13%

Overhead $60,000 $60,000 0% Net Margin $50,000 $36,100

  • 28%

Principal on Debt $20,000 $20,000 0% Draw and Net Profit $30,000 $20,900

  • 30%

Draw includes disability insurance proceeds

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The Farm Credit Council

  • This injury cost the business $13,900 and Tyler

$9,100

  • Just having disability insurance wouldn’t have

solved this problem

  • Just having a depth chart wouldn’t have solved

this problem

  • Having a safety audit might have solved this

problem, but it might have happened anyway

  • Combination of solutions mitigates risk better
  • Still going to have to cut back somewhere
  • Didn’t foresee this in budget

review

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  • Planning for success also means having a plan

if you struggle:

  • Cut back on planned CAPEX (Capital Expenses)
  • have conversations with loan officer (annually)

about flexibility to restructure debt

  • plan to communicate with customers if replacement

product must be purchased and resold (and the difference in margin that will make),

  • labor force shrink
  • order of assets to liquidate and identify triggers

financial options

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The Farm Credit Council

  • Name one kind of insurance you want

to use!!

  • Insurance does not replace good

planning; you need to have a plan

  • You would rather figure this out now

rather than thrown into it in the future

multiple solutions

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The Farm Credit Council

Simplified Planning for Complex Problems

Gary Matteson, Farm Credit Council Tyler Matteson, Farm Credit East

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Questions and Answers

Gary Matteson

VP Young, Beginning, Small Farmer Programs and Outreach 50 F St. NW, Suite 900 Washington, DC 20001 (202) 879-0840 matteson@fccouncil.com FCCCouncil.com

Tyler Matteson

Credit Representative 2 Constitution Dr Bedford, NH 03110 800-825-3252 tyler.matteson@farmcrediteast.com FarmCreditEast.com

Jeff Farbman

Wallace Center at Winrock International contact@ngfn.org Moderator

The Farm Credit Council