00:00 Money, mistakes and financial fixes for your farming business. That is the topic today that's gonna make you money. 00:06 In another installment of the business side of farming here, att extreme ag, cutting the curve. 00:11 Welcome to extreme ags Cutting the Curve podcast, where we cut your learning curve with insights you can apply immediately to your farming operation. This episode is presented by Loveland products. 00:23 When it comes to crop inputs, you need products that are field proven to deliver both results and value. For more than 50 years, 00:30 Loveland products has been providing farmers with high performance value-driven product solutions designed to maximize productivity on every acre. 00:39 Visit loveland products.com to see how their innovative products can help you farm more profitably. And now here's your host, Damien Mason. Welcome 00:48 To another fantastic episode of Extreme Ice, cutting the Curve. Sometimes we put out episodes that are not about agronomics, not about soil, 00:56 not about equipment, not about crop inputs, not about maximizing your yield. Instead, it's about maximizing your business. You know, farming is a business. 01:03 You deal with a whole bunch of capital depending on the size of your operation. Even if you're a small farmer, you have a lot of money at play. 01:10 Crop inputs are expensive to put in a an acre of any crop, takes a lot of money unless it's a cover crop. And even then, 01:18 you gotta spend money. You've got a whole bunch of assets. And also, let's look at what the value of farm ground is. You, you know what, 01:24 it's peak level right now. So you're talking about money, your farming operation is a business. So what mistakes might you be making? 01:30 What mistakes might you avoid? That's what we're doing today. Money, mistakes, and financial fixes for your farming business. Yes, 01:36 we're gonna continue to call it a business. I've got Ben Hanssen. He is with Gross and Company of Dunlap, Iowa. 01:42 They're accounting firm that does advisory and consultation work for the money and business side of farming operations and agricultural entities. Fact, 01:50 he works with Kelly Garrett. That's how Ben and I know one another. We've had drinks together in Omaha. Every time we're together, 01:56 he always says smart stuff. And I said, you know what, Ben, since you're smart, why don't you come on here and give us some content to help, uh, 02:03 the extreme Ag followers and, and members and listeners, uh, improve their business money, mistakes, 02:08 financial fixes for your farming business. Ben, thanks for being here. Hey, thanks for having me, Damien. I look forward to discussing this. 02:16 And you know, we do need to go have a, a drink again here, one of these days down, down in Omaha or, 02:21 or maybe even in Dow City at oir or something, right? I'm, I'm good with all that. Um, when we, uh, when we talk about financial fixes, let's go to the mistakes first. 02:32 You know, farming people are very, very good about production and they focus on it like a, I mean, that's what they're into factory production, production, production, production. 02:39 But you're like, okay, let's talk about profit. Let's talk about the, the money side of it. 02:43 What money mistakes do you commonly see with people that come in the door of Hanssen and company? Uh, gross and company. Sorry, 02:50 Gross and Company. Yep. Thanks. That's fine. Uh, you know, there's a laundry list of 'em, but, you know, one, one that comes, you know, 02:58 to top of mind here as of, you know, just recently is, you know, failure to fix your debt, um, or set up a fixed rate on your debt. So, 03:08 you know, you, you go and, you know, buy a farm, you know, whether it was, you know, uh, off the market deal or it was an auction deal, um, 03:15 a couple years ago. You pay 10, 12, 15,000 bucks an acre and you go to your banker and your banker's like, yeah, we can fix your debt for, or, or we can give you a loan, um, for, 03:25 for 2% interest. And it's just gonna adjust every time that the Fed adjusts, you know, rates. And, you know, at the time, 03:31 the Fed hadn't done anything in a long time and you know, the max rates have been maybe 5%. And you said, okay, fine, 03:39 I won't be variable. And you know what, my, my rate's gonna be cheap. Or the other option was it's gonna be double. Um, 03:46 but I could fix that debt for 10, 15, 20, 30 years. There's a ton of products out there that allow you to do that. Um, and I, I've had a couple clients against, you know, my my better wishes that, 03:59 you know, didn't fix their debt. Now they find themselves fix their rate on their debt. I apologize. Yeah. Um, now they find themselves in, in the position of, you know, 04:09 their rate maybe seven, eight, 9% on some of this, you know, long-term money that they have. 04:15 And all of a sudden it increases their cost of production. 'cause in my mind, rent or rent is also the same as interest on, you know, a piece of ground. 04:25 So whatever your annual payment is, principal and interest is the divided by the acres as your equivalent of rent, right? Sure. So you want to have the right of use to these assets. 04:36 So if you have the opportunity to know that it's going to work at x interest rate turned out over a a period of time, then why not do it? 04:45 Take some of that interest rate risk out of your, of your operation, you know? So that's one thing, you know, un unfortunately, hindsight 20, 04:53 I wanna, I wanna Wanna interrupt. I wanna interrupt just for a second. You know, that thing, there was a time when folks probably thought hell we're never gonna have high 05:01 interest rates again. You know, it, it sputtered around. We interest rates were cheap. And it depends on your, your, uh, 05:07 perspective and probably even your age of experience. Because first house I bought was at variable money, but it was fixed for seven years. And I thought, 05:16 I'm not gonna have this house for more than seven years. And I think I paid seven and a half. And, and I remember like people, 05:22 older people saying, oh, for a house I bought paid 16%, 14% interest. So then we got to this era of low interest, which was shoot, 15 to 20, almost 20 years of pretty darn low interest, 05:34 like hovering around like four, four and a half to five. Three to five, right? Right. 05:40 And so now we're in this thing where interest rates are going. So a mistake that you saw made was folks didn't think, oh, 05:46 these interest rates can move upward, essentially. That's what you're saying, Right? Yeah, that's exactly what I'm saying. 05:52 And not to say that they're not gonna go back down, but in the near term, I would say the next two to three years, I don't see 'em going back to that, 06:00 you know, four or 5% anytime soon. It's gonna take a lot, a lot of time for the Fed to figure out what they wanna do. 06:08 Yep. And we're, by the way, depending on, you might be listening to this in the year 2029, and this is all past, you know, but we're recording this, we're recording this in the summer of 23. So anyway, 06:18 okay. Money mistake that you see made besides not fixing interest. What's the next one? 06:23 So that would be one, you know, and, and the next two, um, com you know, kind of relate a little bit off of each other, but poor record keeping is, 06:32 is one, is that someone, you know, maybe misses a big expense, doesn't account for all their income. You know, 06:39 the thing that really concerns me is that, you know, people don't, you know, truly go through their bank account as they should. You know, 06:46 as many transactions, you know, that are going through people's bank accounts. Now, I typically recommend that they have a form of an electronic, um, 06:55 record keeping system. Um, it, it helps, you know, one to make sure you've captured everything, but in the event that you ever have an an I r s audit, um, it, 07:04 it gives you documentation of what you're deducting, what income you're picking up, you know, and thirdly, it also helps your banker, um, understand, you know, that you've picked up all these transactions that you, 07:16 you have everything taken, taken into account and you have good records and you're organized. Um, you know, so that would be, you know, number two is poor record keeping. Um, along with, 07:27 you know, that, that record keeping, if you don't have it, you can't really do a good job of planning for year end, um, 07:34 trying to figure out, you know, how much tax am I gonna pay this year? Or am I gonna get a refund Most of the time from a, a, a farmer perspective is, 07:43 um, how much tax am I gonna have to pay? Um, and where are we at? What can we do to best plan for this going into the end of the year? Um, 07:52 I, I truly hate, you know, that guy that wants to put everything off until the last week of the year, um, to go through everything because he hasn't gone through any of his books since, 08:01 you know, December of the previous year. It tells me that, you know, they really don't want to, um, understand, you know, 08:08 the what happened to their operation for the year. What, what are the fruits of their labor if they did have fruits or, or what are the, 08:16 the drawbacks of, hey, we had, you know, really good markets, you know, a year ago and now they're not as good. Um, and the crop was okay, but you know, 08:26 even, you know, like 20, we're in 2023 and you know, we have, you know, a record year of inputs. Yep. Um, high inputs, you know, prices are falling. 08:36 Um, we get to year end and I can just see, you know, some of my clients like, well, I didn't make any money this year. Like, well, 08:42 what about all the grain that we deferred from the prior year to 2022? We forget about that. Um, 08:49 so let's make sure we manage your tax rate at year end. Let's prepay, you know, if we need to buy a little equipment, we can, 08:56 let's do what makes sense to help us manage that tax bracket. Um, you know, 09:01 prepayments are kicking the can down the road equipment if you don't need it. Doesn't ever, you know, doesn't always make sense. Um, but you know, 09:10 the only you know, at the end of the year, the best I advice I can give you is that we really manage the tax brackets, um, that we have, pay a little tax and make sure that we're, 09:20 we're doing the right thing to project out into the future of, of where you're gonna be down the road. 09:27 I like it. By the way, you just ran through a bunch of little things there. Obviously the farmer story is, I'm having a fat year, so in December, 09:33 I gotta go and buy some equipment at the last minute to get some money off my books. That obviously does do the job of getting money off your books, 09:40 but also it could be silly if you are buying something that has a big cost that also is fairly low return. You're, you, you right on some tax payment, 09:48 but you also bought an asset now that you're sitting on that you don't even need. 09:53 Right? You, I like to focus on the economics when we're going through some of this planning stuff is if you truly need it and you're gonna buy it in, you know, 10:02 March of the next year, well, yeah, it makes sense. So maybe let's accelerate that payment to December, um, or that purchase to December and, 10:10 and get it on your books and get the tax benefit for it. Um, but you know, if it's gonna cost you 25% more in December versus in March, 10:19 well maybe let's pre-pay so that we can delay that purchase. Um, and so I like to think of, you know, our, of our firm as a, a, 10:27 a business-minded economics, you know, based firm rather than, you know, just saving someone taxes, not paying taxes, you know, tax prep. 10:36 Um, so that's, you know, really, uh, a thing that we try to focus, focus a lot on, 10:42 Is there another money mistake? We talked about, uh, the, the management of debt and interest rate on debt. 10:47 And then I heard you talk about record keeping and I kind of heard you talk about understanding your expenses. This is the one that I see, uh, 10:53 and it's not just farm people. I, you know, I've run my own business for three decades. A friend of mine had a business, uh, and, and it was new at it, and I said, uh, it was like late summer, early fall. 11:04 I said, what's your revenue picture look like right now? Uh, and then, and where are you gonna end up on expenses versus your revenue? Said, 11:11 I don't know. I said, that's kind of important. So it was very apparent to me that this guy thought it was a neat idea to have a business or thought that people that ran their own business just printed money. 11:24 But I said, well, what's the revenue picture you must have? Do you know what you've made so far? Um, kind of, 11:29 do you know what it looks like for the next, the, the last, the fourth quarter? No. Do you know what you spent? No, I don't think farmers are that bad. 11:38 'cause they know they pay for the inputs, but I'm still not convinced that they really have their cost of production dialed in sometimes. 11:45 And I'm not sure that they really know what the revenue looks like. And that comes with that thing of they get to December and say, oh, crap, 11:52 now I gotta do something. Is that, am I accurate in that? Yeah, I would say you're pretty accurate. And unfortunately, the, 11:59 the part about farming that's difficult is that you're, you're prepaying expenses in December, you might not be picking up the revs new until the following year. Right. Um, 12:09 so, you know, I've even had bankers ask me like, is this guy making any money? Um, and, uh, you know, if, if all they're doing is trying to, you know, 12:19 not pay tax or manage their tax position, and they're not using what we call in the, the accounting world and accrual basis of accounting is, you know, 12:28 so figuring out what your inventory is at the end of the year, how much are your prepaids for the following year? Yeah. 12:33 That's not something that should go into this year's crop. Um, if you're not doing that, you, it's hard to tell, you know, 12:39 if you were profitable for that year, and, you know, it's such a volume game and, um, it, it does take a significant amount of time to sit down and 12:51 do the thing that people don't like to do. The bookwork, right? The, the, the number crunching. And I had a guy this morning tell me, he goes, 12:58 I hate paperwork, but it's the only way I get paid, so I have to do it. And um, like, if you don't wanna do the paperwork, you know, 13:06 maybe you should just be sitting on a beach and be a beach bum, right? Because, you know, ultimately you just don't farm for fun, right? It's, you, 13:14 you're in the business of growing this crop and trying to be profitable, right? So why not figure out if you were profitable? Um, so, you know, I, 13:23 I think this, this is a good transition into, you know, the, the money mistake that I, I do see, you know, understanding cost of production, 13:32 um, but you know, also understanding, you know, what paying a little bit of tax does for you. And I've heard the argument of, I don't like to pay the government because I don't think they appropriate it. 13:43 Right? Yeah. Right. Um, you know, what, what's my, my return on investment, um, and I would argue to you to, 13:50 to a lot of my clients is it doesn't matter how they appropriate it. Um, but what does matter is that we, we pay the tax at a reasonable rate. 14:00 'cause if you don't, now down the road when you are getting out of farmer farming, it is just a matter of time when you pay it and it'll be at a much higher rate. 14:11 Yeah. You're, you're talking about, granted, we all like to take advantage of all the deductions and whatnot that we can if we run our business, 14:18 but there are times that that tax of, uh, avoidance is not always the best business move. And I've heard it said from people like you before, 14:31 sometimes they do that big acquisition and get rid of a whole bunch of cash and then to avoid taxes, and then they're, they're not in a good cash position. 14:40 And then they're at this point now they're borrowing 9% operating money. It might've been smarter to pay some taxes and hold some cash. And, you know, I, 14:47 I've heard that before. That's a hundred percent true. And, you know, I like to, to tell people, I'm like, would you rather have, you know, 14:55 70 cents in the bank after paying a little bit of tax or have $0 in the bank and some assets that I may, may or may not use or I didn't need? Right? 15:10 And so a lot of times when people sit there and think about it and they're like, well, I'd rather have the, maybe the 70 cents in the bank, 15:16 but I just don't wanna write that check for the 30 cents. I'm like, well, you're still not following what I'm, you know, 15:21 explaining here is you never wanna be cashed for if you don't have to. Right. Um, so if you can manage the bracket, you know, the, 15:29 then if you can manage the bracket, you should, um, and make some of those good decisions. You know, and this, this is, you know, another thing is understanding the taxes that you are paying. 15:40 I tell people that we file two tax returns. If you're in Iowa, um, you file a federal tax return in Iowa tax return, 15:46 but you actually pay three taxes. And they're like, what do you mean? I'm like, well, you pay federal tax, you pay state tax, 15:54 but you also pay self-employment tax, which is filed on your federal return. So a lot of farmers are paying self-employment tax, 16:01 which is building themselves social security credit. Oh, Yeah. It's, it's basically, it's, 16:06 it's the social security payment that if you had a traditional job the employer would be making on your behalf, and since you are your own employer, 16:13 you're making it on your own behalf. Yeah. And it hurt hurts, you know, as, as being self-employed, you, you pay it all at the end of the year when you file your taxes, um, 16:23 as an employee, you pay it every two weeks. So it just comes outta your check. It's a part of a part of living and working. Um, 16:29 so to the extent that I can get people to, to pay the minimum social security credits, uh, the minimum amount of Social security Medicare tax to build the credits for the 16:41 year, I, I always encourage it, um, because you're giving yourself a, a pretty good return on investment, um, from a social security perspective. And, 16:51 and then the next argument is, well, how do we even know if social security's gonna be there? Um, and We, and we don't. I understand that argument. We don't necessarily, 17:01 How, how, how do we know if the sun's gonna rise in the east tomorrow morning? We truly don't know that either. But, uh, 17:07 I would say that the sun rising in the East is probably a, a more given. Right. But when every time a politician, you know, 17:15 gets into cutting social security, it seems like it's a, a non mover to everyone. I would say maybe they, it, it will get some of the, 17:24 the benefits may not grow at the rate that you've seen. Um, but I, I had a, a class last week that I attended, and, um, 17:33 the guy leading the conversation, it was completely about ag. Uh, he said, if you pay the minimum social security, the minimum for credits, um, 17:43 with on the first bin, which is about $11,000 times, um, 15.3%, it's about $1,600 a year. If you did it for 35 years, you add interest onto it, all these other things. 17:56 Yeah. And you figure out what your benefits are from your full retirement age, which is 67 until, um, 77, just 10 years, 18:05 your rate of return is something like 10%. If you live for 15 years, it goes to like 14%. If you live to 20 years, 18:14 it goes to 17 or 18%. He's like, I will tell you this, there is nowhere that you're probably gonna get a better return, um, guaranteed return on your money. 18:25 Yeah. That's something that I, I appreciate that perspective because I also am one of those guys that thinks, well, social security could go away, whatever, 18:33 but if you live a a and plus it is, you're legally bound to pay it. Anyhow, okay, get me outta here. Financial fixes for your farming business. 18:41 But we covered a lot of them. They were talking about the money mistakes. Is there any big takeaway? Gimme the, gimme the last nugget, 18:45 the last nugget here. What do I need to know? Uh, and I, and I'm not being mean, but a lot of agricultural producers, they, they, 18:52 they want to be well off, but they, this is the lead, this is the last thing they go to. I mean, they, they, like you said, they, they hate doing the business side. They hate doing the paperwork. 19:01 They'd rather go out and be on the field, out in the scouting fields, in the tractor, whatever. 19:06 So what's your piece of advice for them to avoid financial, uh, money mistakes and to create some, take some corrective financial fixes? 19:14 I would tell you that, uh, this, this is a great conversation that, you know, actually someone else, you know, brought to me probably seven to 10 years ago, 19:23 was to build your team. You know, you weren't necessarily educated, um, in, you know, taxes. You weren't educated in banking, 19:32 you weren't educated in law, you were educated in farming. So build the team of trusted advisors that you want to work 19:40 with. You find yourself a good banker, someone that wants to work with you, not against you. Find yourself an attorney that you can trust. Um, you know, 19:50 sometimes those, those two words don't go to necessarily together, but there's a ton of really good attorneys out there. Um, that's not, 19:57 not the stereotype of, well, I don't trust him anyway, I, I digress. You know, find an attorney that you know, you truly can trust and will act on your, 20:05 your best behalf that you can call when you need something or, you know, he'll call you back and then find yourself a good account. Right? Um, 20:13 find just someone, a c p A, um, you know, maybe an enrolled agent, someone that truly understands, um, the tax law that understands, you know, 20:23 the economics, your operation, um, and, and can give you some good advice. You know? And then finally, I'd probably tell you, 20:30 find yourself a good financial advisor. Uh, it seems like everyone wants to, you know, re not everyone, 20:36 but farmers in general wanna reinvest all their earnings right back into their farm operation. But it's good to diversify. 20:43 So why not pull 10, 15, $20,000 a year outta your farm operation and invest it somewhere else? Um, it seems like when Wall Street's doing real, 20:53 really good main street's, not maybe doing as well when main street's thriving, maybe Wall Street's not, um, you know, that's, you know, 21:01 the rural America mindset to some extent. So why not diversify? So build your team, find the people that can help you do the things that, um, 21:10 you're not necessarily educated and you know, an expert in. And, and you can count on hopefully being success successful long term. 21:19 I love that. Um, there's a reluctance to that thing that you even talked about in a prior episode. Well, I don't wanna go pay, pay an attorney. 21:28 I don't wanna go and have a bunch of legal fees. I don't wanna pay an accountant unless it's exorbitant and how I've handled it for 30 years of my business. 21:37 I go in with an actual set of objectives and pre-submitted questions and topics to be addressed, then it's not just wasting time. You know? 21:46 And I think that's the right piece. Advice I'd give. Yes. Love your thing. You said have a team banker, accountant, attorney, 21:55 financial advisor. Yes. Love it. And I say each interaction with those people, be prepared to state your objective or handle a question. 22:03 That way you're not wasting one another's time and the billable hours become a tremendous amount more, uh, productive. Is that, is that a good, uh, 22:11 recommendation for somebody like you that charges by the hour for consultancy? Absolutely. You're gonna get much more outta my conversation if you, 22:19 if you come into the conversation with, um, aad, here's, Here's my problem here. How do I address 22:24 It? Yeah. Yep. Well, you know, and, and give me the foresight to say, Hey, email 'em to me in advance, right? Here's my issues. Um, you know, 22:31 how should I address 'em? And then when we get in that, into that meeting, you know, if you at least have, you know, your, your notepad, your pin, your, 22:39 you know, your, uh, your computer, that you can take some notes so I don't have to continue to repeat myself. You're going to educate yourself as well and save yourself a lot on that 22:51 billable hours perspective. I love it. I like that, that that's a great way to wrap it up. Surround yourself with a team and don't, don't look at it as its expense every, 23:00 you know, look at it as you're getting the proper advice, professional services to continue perpetuating, or more importantly, 23:07 growing your farming business. So I think that's the way we gotta look at that. And by the way, 23:12 speaking of being a productive member of the team at and Company of Dunlap, Iowa, where Ben Handsome works, they do all sorts of agricultural, uh, 23:21 accounting work, but they also have a consultancy. So you don't need any more tax work, but you definitely can take on some consultancy. So if they wanna find you, 23:29 how can they use you? How can they employ your services as a consultant to help their business? Yeah. You can give us a call or shoot me an email and, um, we can kind of, 23:39 you know, figure out if you are, you know, structured correctly, you know, what is your, your plan? You know, 23:44 what are you doing in advance of some of these meetings? Are you getting good advice? Um, and yeah, that's a, 23:51 a bill hour service that we can, you know, provide to people. Um, sometimes it, it leads to, you know, bigger projects, um, maybe down the road becoming, 24:00 you know, clients as we have availability. Um, but a lot of times it's, it's, uh, a fee for service. So let's get on, you know, the phone, 24:08 let's talk about what you have going on. And it may be a, a five to 10 hour project of saying, Hey, this is, you know, 24:15 the avenue that you need to go down to get to where you wanna be. I like it also because as you said, so, so many people make decisions and do, 24:23 do pull the trigger on something, and then by the time they come to you, they've already blown some money or made some, uh, 24:30 adjustments that have cost them. So it's probably smart to get some input ahead of time. Gross and Company Dunlap, Iowa. His name's Ben Hanssen, by the way. 24:38 Are you ready to stand up to weather induced crop stress? If you're a farmer, you deal with stress, hot, cold. More importantly, no rain. 24:45 Turn to Terra Mars, an innovative bio stimulant technology from loved one products designed to help your corn and soybean crops thrive. When you have stress, 24:56 Terramar can help exclusively available from nutrient ag solutions. The product's called Terramar, the company is Loveland, 25:01 and it's available at Nutrien Ag Solutions. Till next time, he's Ben Hansen, the accountant for Agriculture Gross and Company Dunlop, 25:10 Iowa. Look him up. Thanks for being here, Ben. Thanks Damien, for having me. Appreciate the conversation. Thanks for being here, dear listener. Till next time, 25:17 this is another one of our series of the business side of farming. I'm Damian Mason. Sure. This is somebody who can benefit from it, 25:23 and it's extreme ag cutting the curve. That's a wrap for this episode of Extreme Ag Cutting the Curve, but there is plenty more available by visiting Extreme ag.farm. 25:34 For over 50 years, farmers have turned to the proven lineup of crop inputs offered by Loveland products, from seed treatments, plant nutrition, adjuvant, 25:43 and crop protection products. Loveland has the complete lineup to keep your farming operation productive, and most importantly, profitable. Check out loveland products.com to learn more.