The topic that was trending more than any other from the end of 2015 to the first quarter of 2016 was definitely “How to make it through 2016.” With depressed commodity prices and higher debt loads many were left scratching their heads on how to pull together a plan to make ends meet. Well, out of all of the advice that was given I am going to quickly give you the run down on what I have observed to be working well thus far and throw in a little continued advice.
Everyone said, first and foremost you need to look at your expenses. Look at your fixed as well as your variable costs and see where you can trim some fat.
- For fixed costs, I have had many clients as well as heard from many others who have had luck negotiating land rent. Land owners are aware of how the market is and have been willing to be flexible to a certain extent. Also, some have reported having luck with equipment rent negotiations from both dealers as well as individuals. Those who experienced the most luck were typically those who went in with a clear plan to propose. One that was as advantageous to both parties as possible. After all, you can’t expect much by just saying “Hey, rent is too high. I can’t pay that. Make it lower!”
- For variable costs, I haven’t witnessed as much luck. Some luck just not as much as fixed costs. Most of the results have came from research, peer groups, or other producer meetings. A simple “Hey, have you used X? Its cheaper but is it as effective, efficient, etc..?” A lot of help was found on this front by utilizing the trial and error of others – sharing data. Learning from others mistakes and accomplishments has saved some folks some dollars this year.
Next up on the block we have debt. Shortage or carryover loans were in high demand and larger debt payments were harder to make in 2015….then there is the worry about how to make the payments in 2016!
- Restructuring Debt – This might be the most complicated process of them all! There is a lot to consider here, but I have had a lot of my clients have a lot of luck with this. Many who needed relief from tight situations found it through reduced payments via restructuring. Some folks combined several loans together, or refinanced their RE loans (with re-extended amorts), and some “rescheduled” or “rolled” payments (forwent principal and paid interest only). Any or a combination of those would provide needed relief and I have seen them all get done! Remember though, restructuring debt is a tool to navigate tough times. When markets improve debt “should” be put back to its normal amortization in order to regain equity. Because, the restructure this time would not have been possible without the presence of equity in the asset the loan was tied to. When you are short cash, equity can be your saving grace!
- “Equity Cash Out” – This may not have been the most widely recommended advice earlier in the year, but it has worked. Some decided to cash in some equity on their real estate in order to lock in some long term working capital at a low rate. They wanted easy access to cash in the event they needed it to fill in a hole they saw coming in their cash needs. This was the more proactive approach as they could have just incurred a shortage then used the RE as collateral for a “shortage loan”, but they decided to get ahead of the 8 ball. Good job! Of course no one wants to cash in all of their equity, but sometimes it is appropriate to let your assets work for you (in terms of equity.)
Finally, the point I preach on daily. PLANNING! How are those plans looking folks? Are you glad you made multiple ones, and ran additional scenarios?
- I am very proud to say my clients have seemed to really embrace the planning process (so far) this year. Everyone seems to be embracing the planning and follow through. Folks are keenly aware that they have to keep laser focus on their expenses and if they see an issue arise it needs to be addressed sooner rather than later. This advice seems to have sank in with the farm community because there is a lot of focus on “lean”. I know I have had several requests from clients for information on how to become a more lean operator. My continued advice on this is to keep that laser focus! The additional planning and preparedness is what will help guide you through these rough waters!