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Ephrata National Bank in Lancaster County, Pennsylvania is a $1 billion community bank with 25% of their portfolio funding agricultural entrepreneurs. Lending to support new business models or premium offerings (like value-added processing) can help farmers deal with high land prices and avoid commodity agriculture’s low return on assets.
Open book management is sharing the company’s finances and key financial drivers openly with managers to increase their buy-in and understanding of the company’s performance. By sharing company finances and expecting financial literacy of managers, open-book management allows multiple leaders to use the same language and work towards the same goal.
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The Great Basin Community Food Co-op first opened to the public in downtown Reno with 500 feet of retail space, eventually hitting $1 million in sales in one year. In 2012 they moved to another 3-story location of about 3,000 square feet (on the main floor) even closer to downtown. In 2017, the store had about $4.5 million in sales after rapid growth.
Food entrepreneurs will always have lots of goals competing for their attention. Good entrepreneurs know how to prioritize goals and optimize their efforts for the goals they are pursuing as priorities. This allows them to build financially successful companies and, over time, pursue many more big, hairy, audacious goals than they would have otherwise.
Food entrepreneurs themselves often feel changed when taking outside investor capital. They feel the weight of the responsibility of paying back those investors with a return. They often work even harder than they were before because others are sharing the risk with them and are emotionally invested in their business as well.
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The more you have the ability to analyze what went right or wrong, the more useful your financial model and plan are to making business decisions. Being able to have both an accurate history and a record of making realistic projections that were met can give entrepreneurs credibility with lenders, investors and the business’ board of directors.
Behind every great food entrepreneur is a great financial team, whether that team is employed by the business directly or through an outsourcing method. Building that team helps the entrepreneur, management and board make informed decisions and allows the business’ key stakeholders to focus on growing their customer base and strengthening their brand.
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From the entrepreneur’s perspective, the most important thing when using an accounting package is to ensure accurate setup and data entry so that they are able to produce accurate financial statements. While entrepreneurs need to understand their financial statements and financial drivers, they can often outsource some accounting work.
Tight cash flow can be challenging, even for the most experienced grower. For a beginning farmer, however, a cash flow crunch can quickly become a disaster. An annual cash flow projection is a very useful tool for a farm. You plot out on a month-by-month basis when cash income will be received and when cash expenses will need to be paid.
The single most important thing to do when starting a farm is to create a month-by-month cash flow projection. In the short term, cash flow is much more critical than profitability, because if cash flow is negative, the farm cannot survive once cash runs out. Profitability comes into play when the farmer is ready to retire or pass it on to the next generation.