MYFB — Ep. 25: Steering through business risk and financial risk (and what’s the difference?)

Risk — a four letter word that drives farmers crazy.

As farmers, our chances of success are greatest when we know the risks we’re exposed to and hav emitigated risks that are in our control.

To help us dive deeper into the topic of risk – specifically business risk and financial risk – RealAgriculture’s Shaun Haney speaks with Gwen Paddock, RBC’s national manager of agriculture and agri-business, in this Mind Your Farm Business episode.

Some risks are out of our control, and as we all know too well, weather is a big one in the agricultural industry. However, there are some risks that are actually in our control.

“The thinking around risk has really started to evolve as farm operations get more complex,” notes Paddock. “There is a lot more activity and work being done around ways to manage risk.”

The risks that impact your farm generally fit into two categories: business risk, and financial risk.

Financial risk:

  • working capital
  • interest rates – are they fixed or floating
  • essentially your balance sheet

Business risk:

  • production
  • market
  • technology
  • human resource
  • mother nature

And these two categories of risk can impact each other.

“What we find is in situations where you have high financial risks, you’re highly leveraged or you have a lot of your debt on variable rates, you need to look at ways to reduce your business risk, because you don’t want your total risk to get out of hand,” explains Paddock.

Related: MYFB — Ep 17: Where Is Your Farm At Risk?

As Shaun points out, farmers used to go to banks strictly for financial advice, but business risk has become a very important part of that conversation as well.

“A lot of conversations now between ranchers and producers and bankers are around those business risks. What are they? Have you identified them? What have you decided to do with them? With risk you can accept it, you can reduce it, or you can eliminate it,” adds Paddock. “And depending on what type of risk it is, there are different options available.”

“I’d say the conversation has very much changed from ‘how much money do you need?’ to ‘tell me about your operation, the risks you have, and about how you are managing those risks.'”

Check out this new MYFB episode for more insight on how to manage risk on your farm:

 

Disclaimer: Royal Bank of Canada and its subsidiaries are not responsible for the information provided in this podcast, and this information does not necessarily reflect the views of Royal Bank of Canada or any of its subsidiaries. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its subsidiaries.

 
 

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