Our mid-January issue, "Earn your financial stripes," was just delivered to farmer mailboxes with a big batch of stories focused on how to build your financial skills. Readers will learn the virtues of accrual and managerial accounting, how to restructure debt, how to work with lenders through a crisis, and much much more.
I asked readers to share with me some of the best financial advice they ever got. Many responses appear on page 23 of the issue. Here are a few more replies, to whet your whistle. See if you can relate:
Work the plan
My Extension agent, in the third year of massaging my farm operation information, said to me, "You can do this yourself on your own time and when you choose." So I purchased Finpack (financial software) the next month.
As we began this program he stressed the need to make a plan; work the plan; adjust the plan when it changed from the original; review the new plan vs. the original; and summarize and rationalize the plan periodically, at least annually. So now we make a copy of the initial plan and adjust it monthly when possible. Prices change, yields and production change, revenue and expense timing change. The last adjusted plan for the year serves as the year's summary. I submit the plan to my lender at the beginning of the New Year and the summary is submitted at years end. Changes that will significantly affect the end-of-year summary are submitted as adjusted plans during the year.
Most important is what you and your lender do with the information!
Mike Beard, Frankfort, IN
The best financial advice I ever heard was, "The plans of the diligent lead to profit as surely as haste leads to poverty” (Prov. 21:5). My wife and I have a wise investment manager and he is a big proponent of plans and patience. He sighted this Bible verse and it means a lot to us. The news and the whims of people change every day and it is tempting to chase every change in the wind, but a steady plan will invariably prevail.
Nick Frey, Darlington, IN
I was a banker for a decade before I farmed. When I was a credit analyst trainee at Norwest Bank in Des Moines, a mid-market lender named Tim Bandow told me this: "You package up liquidity when you can get it, not when you need it"
He told me this because we were putting together a 5-year loan for a company that had plenty of cash and inventory in excess of short-term borrowings. It looked redundant, like overkill to me. None-the-less, the company pledged some of its free-and-clear machinery and borrowed against it just to up the cash kitty. A year and a half later their primary competitor got into a financial pinch, couldn't refinance its short-term debt, and had to offer themselves for sale over a weekend.
The company with plenty of liquidity bought them out for 30 cents on the dollar. It might have taken them a lifetime to grow their business by the amount of the acquisition. Instead, they eliminated their competition and bought business assets for a third of cost.
They were glad they "packaged up liquidity before they needed it."
Benjamin R. Riensche, Jessup, IA
The first purchase is the hardest
When I was 20, my dad, Albert, gave me some advice that helped me get established. At the time I was struggling over buying my first piece of farmland, and the price just seemed too high. Dad's theory was this: the first purchase is always the hardest, but it's the one you need to make as soon as possible, for two reasons. First, it forces you to make a payment and start accumulating assets. You begin growing wealth, instead of spending money on a kitchen remodel or new truck. Second, you can use that asset to help pay for the second, third and future purchases. The first big purchase is the toughest, but it's the most important.
Vince Hostetler, Harper, KS
Read more in our mid-January 2014 issue.