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 Matteson Farm Credit East Questions and Answers Upcoming Opportunities, etc.
Simplified Planning for Complex Problems Gary Matteson, Farm Credit Council Tyler Matteson, Farm Credit East The Farm Credit Council
“95% of managing risk is common sense and checking your sources on the internet.” Ab Abrah raham Linc am Lincol oln 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 The Farm Credit Council
know your business • Keep records • Manage complications • Plan for uncertain future The Farm Credit Council
The Farm Credit Council
know your business what is your #1 cost? The Farm Credit Council
. The Farm Credit Council tomatoes Heirloom labor 76% http://www.agmrc.org/business_development/business_workbench/business_ worksheets_and_calculators/enterprise_budgeting_tools.cfm
know the risks you face, face the risks you know If labor is the #1 cost… …it is likely to be the #1 risk The Farm Credit Council
the process of managing risk The Farm Credit Council
the process of managing risk 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 Farm Credit Council
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 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 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 The Farm Credit Council
The Farm Credit Council
Sample Organizational Chart Key vendors Customers 1. 1. 2. 2. 3. 3. Owner/ Operator 1. 2. Key Man/ General Manager Spouse/ Business 1. 2. Partner/ Relative 1. 2. Field workers Delivery driver 1. 1. 2. 2. 3. 3. 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 The Farm Credit Council
The Farm Credit Council
The Farm Credit Council
The Farm Credit Council
The Farm Credit Council
our 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… The Farm Credit Council
The Farm Credit Council
organizational chart for Tyler’s Tip -Top Tomatoes Key vendors Customers Tyler: Owner/ Operator Charlie: Key Man Sarah: Supportive spouse Charlie’s cousins Charlie’s cousins The Farm Credit Council
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 The Farm Credit Council
review • 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 The Farm Credit Council
financial options • 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 The Farm Credit Council
multiple solutions • 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 The Farm Credit Council
Simplified Planning for Complex Problems Gary Matteson, Farm Credit Council Tyler Matteson, Farm Credit East The Farm Credit Council
Questions and Answers Tyler Matteson Jeff Farbman Gary Matteson Credit Representative Wallace Center at VP Young, Beginning, Small Farmer Programs and Outreach 2 Constitution Dr Winrock International 50 F St. NW, Suite 900 Bedford, NH 03110 800-825-3252 contact@ngfn.org Washington, DC 20001 tyler.matteson@farmcrediteast.com (202) 879-0840 FarmCreditEast.com Moderator matteson@fccouncil.com FCCCouncil.com The Farm Credit Council
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