Central California Winegrowers Second Central California Seminar. “Better Planning For the Future”. Central California Winegrowers Second Central California Seminar. Why Do We Need Better Planning? Cycles Seem To Be Getting Longer and Deeper
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“Better Planning For the Future”
Cycles Seem To Be Getting Longer and Deeper
- Tree fruit - Raisins
- Wine Grapes - Dairy ?
The last three decades in agricultural lending has seen transition………….
Performance Based Lending from the bank’s perspective is a “better plan for the future”. It involves asking ourselves the right questions…
(1)What specifically is the money going to be used for? Too many loans in the past have been used to subsidize lifestyle, refinance carryover debt and finance capital purchases.
- Operating Cash Flow?
- Off Farm Income?
- Self Liquidating Asset?
(7) How much can the borrower afford to lose and still maintain a viable operation?
- Minimum Equity/Asset Position above 40%
(Debt/ Equity of 1.50:1)
- Consider the Combination of Potential
Operating Losses AND Decline in Asset Value.
- Meaningful Loan CovenantsWill Play a Much
Bigger Role in Production Lending Than Ever
Before. For example………………………………
Performance Based Lending involves asking the right questions of you as well.
(1) What kind of manager are you?
#1 Being profitable is not enough anymore!What did you do with your profits? Banks are looking more favorably on clients that retain profits for:
(1) purchase of proven cost saving technology
(2) prudent debt reduction
(3) working capital maintenance equal to no
less than 20-25% of budgeted expenses.
#2 Do you know your cost of existence?
(1) Every farmer thinks he knows what his/her
cost of production is.
(2) Cost of existence considers the following…..
If Revenue – (a through e) is less than zero, you are not funding your existence
#3 Do you plan your finances or is the whole process just a big mystery to you?
A show of hands would probably tell me (if you were honest) that many of you spend more time planning your next vacation and your eventual retirement than you do your business’ future.
Another show of hands would probably indicate that many of you do in fact plan for revenue and profit growth. Yet, there seems this big disconnect between the profits you anticipate and the financing needed to get you there! Forecasting finances is an integral part of profit planning.
There are countless examples where our ability to predict the future is less than perfect.
“If forecasting the future is so difficult, and plans are built on forecasts, why engage in the planning effort? The answer does not lie in the accuracy of the projections, for planning offers its greatest rewards when the future is the most uncertain.”
“ The reasonis that planning is the process of thinking about what the future might bring and devising strategies for dealing with the likely outcomes”
Planning is thinking in advance, and thinking in advance provides the opportunity to devise contingency plans that can be quickly and easily initiated, thereby reducing the cost of responding to adverse circumstances or profitable opportunities.