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Alternative Financial/Organizational Structures: How Should I Organize and Finance My Farm Business?

Alternative Financial/Organizational Structures: How Should I Organize and Finance My Farm Business?. Objectives. Identify criteria for choosing a financial/organizational structure Describe the options Legal organization Business arrangement Leasing options Equity debt.

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Alternative Financial/Organizational Structures: How Should I Organize and Finance My Farm Business?

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  1. Alternative Financial/Organizational Structures: How Should I Organize and Finance My Farm Business?

  2. Objectives • Identify criteria for choosing a financial/organizational structure • Describe the options • Legal organization • Business arrangement • Leasing options • Equity • debt

  3. Financial/Organizational Structure of the Farm Firm: Choices and Options • Legal organization • Business arrangement • Leasing options • Equity • Debt

  4. Financial/Organizational Structure Alternatives

  5. Criteria for Choice • Control • Returns • Risk • Maturity/permanence/liquidity

  6. Organizational Structure and ROE

  7. Financial Performance of Pork Production Units

  8. Legal Organization • Sole proprietorship • Partnership • General • Limited • Corporation • Regular • Subchapter S

  9. Legal Organization • Limited liability company • Land trust • Cooperative

  10. Business Arrangement • Independent producer • Contract producer • Subcontractor • Joint venture • Strategic alliance • Franchise agreement • Licensing

  11. Contracting Options • Marketing agreements • Profit/Loss sharing • Profit/Loss sharing with provided resources • Flat fee plus efficiency bonuses

  12. What Do End Users Want From Producers? • Cost competitiveness • Consistent quality • Timely delivery • Predictability/reliability • Flexibility/adaptability • A qualified supplier

  13. What Do Producers Want From End Users? • Equitable reward and risk allocation • market presence/position • Dependability • Access to innovation • products • markets • technologies

  14. Types of Networks: • Information networks • Marketing networks • Production networks

  15. Benefits of Networking • Capture proven technology • Capture real economies • Improve product quality and market access • Utilize production, marketing, and information systems

  16. Limitations of Networking • Commitment of people • Joint responsibility • Formal business procedures • Loss of markets and suppliers

  17. Networking Questions: • Who to partner with? • How do I identify? • How to negotiate? • How to govern? • How to manage? • How to finance? • How to exit?

  18. Leasing Options Real Estate Lease • Cash lease • Share lease • Flexible cash base • Shared appreciation lease

  19. Leasing Options • Facility/Equipment operating lease • Capital/Financial lease • Leveraged lease • Leaseback

  20. Equity Sources • Initial capital contributions • Retained earnings • Valuation Equity • Stock • common stock • preferred stock • “External” equity/contributions • Warrants or options • Venture capital

  21. Equity Business Practices • Payout (dividend or withdrawal) policy • Intrafamily transfers • ESOPs and stock options • “Buyout” policies

  22. Debt Loans • Maturity • Interest rate • Amortization arrangements • Prepayment features • Security/collateral • Conversion of terms

  23. Debt Loans • Shared appreciation mortgages • Reverse mortgages • Interest rate strips, futures, options, swaps

  24. Debt Bonds • Convertible bonds • Callable bonds • “Zero coupon” or deep discount bonds

  25. Conclusions – Financial/Organizational Structure • Critical strategic decisions • Significant impact on ROE • Numerous alternatives • Diversification

  26. Strategic Business Planning for Commercial Producers

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