Recession-Proof - a podcast by Ramp

Speaker 1:
You are listening to FinOps Today, a podcast from Ramp where the world's most innovative finance leaders share what's on their agenda. Here's your host, Ramp's own head of finance and capital markets, Alex Song.

Alex Song:
Hi. Welcome to FinOps Today. On this week's episode, we're speaking with Josh Reeves of Walther Farms. Hey Josh, how are you?

Josh Reeves :
I'm doing well. How about you today?

Alex Song:
I'm doing pretty well. Technical difficulties not withstanding, but we're recording and I'm happy. Josh, why don't you tell us a little bit about yourself and what you do?

Josh Reeves :
Yeah. So I oversee the finance accounting and IT parts of Walther Farms. I've been here for about nine years now. I started off in the technology side of things and in 2016 a need kind of arose on the finance and accounting side of things. I studied up, did what I could to learn as much as needed for taking over the finance role and not too long after that, took over the helm of all the finance and accounting and still keep technology under my radar as well and support the organization as their CFO today.

Alex Song:
That's really cool. We've recorded maybe nine or 10 of these episodes already and you have by far, I would say the most unique background of anyone, right? Just in the sense that you didn't really start as a CPA, you didn't start in accounting, you didn't start in finance. You actually came over from the technology side. So tell us a little bit about that transition and how you wound up in the CFO position.

Josh Reeves :
Yeah. So there's a lot of similarities between the two parts of the business. They're both very mathematical and data-oriented. So I was fortunate that even still in the technology side of things, I was able support and help the finance team, building new financial reports and automating different parts of the business to help them do their jobs better. And from there, when the need came up, I took online classes, studied up on the nights and weekends to learn the technical side of the accounting and finance, and did what I could to learn from the team that was around me, joined peer groups within finance, within agriculture, found a couple mentors in the area and between our CPA team that we were using and attorneys, and all the other resources available to me, just really dug in and tried to learn as much as I could to be able to provide the finance role that the organization was looking for.

Alex Song:
That's awesome. I feel like a lot of the times, especially when people stereotype and think about finance teams, a lot of the time we think, "Oh, it's pretty backward. We're using very old software," et cetera, et cetera. It's one of the things we're trying to change obviously here at Ramp, but it's really good and it's really awesome to hear that there are folks who are coming over from the technology side of the house who become interested in finance. They want to modernize the stack. That's actually a very inspiring story.

Josh Reeves :
Yeah. Thank you. It's been a fun journey and still rely very heavily on the technical side of things because finances, so technology driven anymore when you're using the right software stack and we're integrating and building off APIs and doing all these different things to connect financial data between our different systems and eventually connecting those who are operational data to be able to provide high quality reports to our management leadership teams.

Alex Song:
Yeah. Shifting gears a little bit, tell us a little bit of Walther Farms. How did you come across these folks? How long have you known them, agriculture? What do you guys grow? I would love to hear about what you guys actually do.

Josh Reeves :
Yeah. So we're a family owned farm that started in 1946 up in The Thumb of Michigan. It's what we kind of consider the home farm. So we're third generation now. That's the generation that's kind of running the operation. They're active in the day to day. And there's nine third generation Walther owners and then one non-family member that came by way of a merger that we did in 2018.

Josh Reeves :
So we affectionately call him a cousin and it's still a very family centric organization. From the thumb of Michigan back in the 1940s, we've grown to about 13 different operating states or states that we have potato farms in. And then we have two trucking divisions that support deliveries to our customers. One in the east of the Mississippi and then another division that operates mostly in New Mexico and Arizona. All those different location and the trucking and everything that we do is in support of our customer base.

Josh Reeves :
And our customers are mostly chip manufacturers. So we grow Irish round white potatoes, and those are mostly used, those are our good varieties of potatoes to be made into potato chips. So we have customers all over the country and our goal is able to deliver potatoes to them 365 days a year for them to process, and bag, and get out to their customers. So that's kind of where the footprint came from and the history and all the growth that we do is solving customers' problems. And what problems do they have between transportation, timing of the year, things like that?

Josh Reeves :
Those are what intrigues us and allows us to go solve their problem and put together strategies to put together a new farm or be able to deliver a reduced food miles in the system to reduce like the cost to them, but then also things like GHG or greenhouse gas emissions, things like that. And all that we're doing by increasing yields and reducing miles in the food system helps achieve that goal for our customers and really all of us as well.

Alex Song:
I know my potato chips. I love that. Are you allowed to tell us who your customers are? Is it Kettle chips? Is it Frito-Lay, or Pepsi, or whoever else? Are you allowed to tell us?

Josh Reeves :
Not really specific, but we deliver to the majority of the nationwide brands.

Alex Song:
Interesting. I actually did not know that about you guys. That's anything. As you probably know, we typically interview your kind of stereotypical Silicon Valley, New York based tech startups and whatnot. So having someone in the agricultural space is definitely very new, very exciting, pretty differentiated for us, but that's awesome. I'd love to hear, is there anything special? Is there anything unique about doing finance and accounting for a farm essentially than any other industry like manufacturing or technology or anything else? Are there special considerations that you think about that probably someone in another sector or another industry probably doesn't have to?

Josh Reeves :
Yeah. That's a really good question. There's a lot of things that impact agriculture that don't really touch other industries. A big one would be for the size of our organization, usually, we would be all accrual basis, tax accounting, and we're actually cash basis. That's something that is afforded to us as an industry. And it adds complexity, but adds a lot of flexibility as well. So we still manage all of our managerial books, our accrual. So we actually still do everything accrual basis and then convert to cash basis once we start getting towards the end of the year and working with our CPAs to get our tax preparation going.

Josh Reeves :
So that's probably one of the biggest ones. The other is there's lots of different regulatory things that we deal with. Farms are pretty complex anymore. So we have lots of different licensing. We have things to manage with all the different states that we deliver to. So managing our nexus and just keeping tabs on all those different things. Usually you think of a farm and they might grow in one state and deliver to another. And with our footprint, we deliver to, I believe it's over 25 different states.

Josh Reeves :
So lots of combinations of where the products come from and where they go to. So a lot of considerations when it comes to the trucking side of things, making sure that we're complying with all the local regional laws and the places that we operate and just kind of keep keeping tabs on all those different things. And this year, especially, inflation is hitting us pretty quickly and I think a lot of the other industries, this will be a major factor of CPI and months to come, but we're already seeing it in our inputs.

Josh Reeves :
So we have pretty, pretty wide supply chains. It takes a lot to grow a crop. We don't have just 20 vendors that we get products from. We have hundreds and thousands of vendors and working with all of them to make sure that all of our inputs are coming in, all of our inputs are available. That's been something really tough as a lot of industries have seen, but especially with the war in Ukraine right now, and then the sanctions against Russia, it's really making different types of fertilizer, different inputs, very difficult to get. And then when you can get them, the prices increased dramatically.

Josh Reeves :
So trying to manage that and all the other things that we still deal with on a regular basis like weather. That's one of the things that when you look at manufacturing financials, you have a pretty well established set of inputs, set of outputs, and you might have a little bit of scrap.

Josh Reeves :
And we could have all the dollars for our inputs and due to a weather event, our scrap or our shrink, or our lack of product available, the ship might be 50% of what it was the year before with even more expensive input. So having that variability with weather is something that's pretty, pretty tricky and we still manage everything on a cost per unit basis to try to get our cost of production in front of our manager. So we're managing each unit that we're able to produce.

Josh Reeves :
But you could have a weather event that increases your cost of production twofold because your yield just dropped by half, but your inputs didn't change. So a lot of different things that we're managing in that regard.

Alex Song:
This is something that I feel like I would often listen to in finance class. I have like some nebulous sense of, "Oh, yeah. Of course, farmers protect themselves by X, Y, Z." But I got to ask you, in order to protect yourself against certain some of these events and inflation and spike in inputs and whatnot, are you guys buying and selling agricultural futures? Are you guys trading weather derivatives? Are you doing all of this crazy stuff that I feel like years ago, I read about in finance class to protect yourself against inflation?

Josh Reeves :
Yeah. We're doing some of those things. We have commodity futures for energy and energy is more than just diesel, but all the energy used by our suppliers to apply products to the fields, things like that. We're also trading in corn and soybean futures to help us manage our cost of our land rent. So we're doing a few different things there that can help us be 12 or 24 months out as far as locking up pricing and managing against a known price versus an unknown price.

Josh Reeves :
And then the other thing the last few years as I think a lot of other industries are doing is we got so used to having products or inputs available. Things like just-in-time inventory and using the Toyota Production System model that the last couple years we've kind of learned, "Hey, we need a little bit more flex in the system. We need a little more inventory to be able to manage not being able to get a product for a few months at a time.

Josh Reeves :
So we're starting to look at what kinds of inventories do we need to mitigate those risks in the short term, but then also working up the supply chain and figuring out when's the best time of year to deliver things like fertilizer or some of our different chemicals and having the right inventories available to be able to take deliveries.

Alex Song:
That's incredible. Because I always think sometimes people will go on Bloomberg, will go and look at the charts and will look at the supply chain disruption and whatnot. But it seems like some amount of hedging and financial derivatives is able to protect you a little bit around some of the shocks in today's world. So that you're not completely just kind of losing your sleep and stressed out. Is that like a fair characterization? Is that like, you're actually, there is a lot of disruption, there is all this inflation but you're able to at least partially protect yourself against that?

Josh Reeves :
Yeah, partially. I mean, don't get me wrong. We definitely still lose lots of sleep with different issues and weather like I mentioned. Part of the advantage is the diverse locations. So if we have a rain event in one location, the chances are, we're not going to have it at every location every year. So that helps mitigate some of the risks that we do have and having an asset based transportation division. We have the resources available to maybe shift between different locations and provide that as a service to our customers. That really helps some of those things.

Josh Reeves :
The other one is we're kind of on an 18-month crop cycle. So we plant some of our early planted states in January of one year. And then in the Northern areas or the cooler more moderate climates like Michigan, Nebraska, we're able to store potatoes and we can ship those potatoes all the way through May or June the following year. So they really make an 18-month cycle.

Josh Reeves :
So it does buy you some time to be able to get out ahead of different input issues or different supply issues that the industry might be seeing and be able to react to those things rather than just having one location that harvest for five, six weeks out the year, and then you're not able to extend a shipping window or go to some other location to help shore things up for your customers.

Alex Song:
I love it. I love it. So it sounds like you've got some geographic diversity that's getting some diversification of risk. And it sounds like because of the length of the growing cycle, you also have some inner temporal almost kind of arbitrage, I guess, where you can move stuff around in time to attenuate some of these risks. That's really cool. I could talk about this topic forever. I find this to be fascinating, but let's maybe bring it back to FinOps.

Alex Song:
Let me ask you, how's the team? How many folks are working on all of the tax, the accounting, the financials, as well as trading some of these derivatives? What does your team actually look like on a day to day basis? How many folks are there, et cetera? What do they all do?

Josh Reeves :
Yeah. So we have a pretty lean team for the size of our organization. So we have our APAR treasury fixed assets. Those are all supported by myself and two other team members that sit here in our headquarters office in Southwest Michigan. We have one person that's devoted to payroll and benefits. And we have a few team members that are on other teams that aren't considered the finance IT team. That's kind of what we call it internally. We kind of roll the two together.

Josh Reeves :
But they're able to support with things like accounts payable or accounts receivable remotely from other farm locations. So we're able to tap into maybe some talent that is sitting in a farm in the upper peninsula of Michigan that normally wouldn't have enough work to support kind of like a traditional office manager type role.

Josh Reeves :
Now, we can put 30 or 40% of the finance IT functions or accounting functions on their plate, and it really becomes a win, win, win. They're able to maybe get a higher compensation than they normally would in just that office manager role. And we're able to spread different activities out across other locations from my team and at accounting controls and things like that by having more people. It's not necessarily all full-time people, but portions of other people's times because we've been able to digitize and do a lot of these different things.

Josh Reeves :
Beyond that, we have a strong IT team. We have an IT manager that works a lot on the backend stuff, but then also more on the front-end building out the some of the financial reports and operational reports from our shipping software that we use and building some of the automations that we're using to move data back and forth between our accounting and finance systems, and systems like Ramp, and bringing that data into our accounting package.

Josh Reeves :
And then we also have a really strong CPA team that we work with for our financial reviews and then our tax. There's a lot of things that are unique to agriculture like we talked about earlier on the tax side of things. We have a CPA firm that a big portion of what they do is agriculture and they focus a lot on how to support clients like us that have these unique things and a unique entity structure, and kind of a big and complex entity structure just with the age of the organization.

Josh Reeves :
Being around almost 80 years, we have some extra entities or disregarded entities, but still have some reasons to keep them around for tax reporting purposes and then just more reporting requirements in having all those entities as well.

Alex Song:
It sounds like you guys kind of embraced distributed work and kind of multi-office work even before the rest of the world went full remote. That's awesome. You're able to leverage folks across different offices, across different functions. Any specific tools or vendors, or software? Anything you want to call out that's really helped you guys work together, collaborate, communicate across the different offices and across different work streams? We'd love to hear about what your tech stack looks like and what you've liked and what you haven't liked?

Josh Reeves :
Yeah. So we have lots of different systems that we use. A few years ago, we came to an inflection point and we thought about going full blown, cloud based ERP, or do we keep doing what we were doing? We got pretty fortunate that the system that we have been using for a long time, it's called Sage 300 ERP. It's a little more old school. It's an on-prem server that sits right here at headquarters, but it's very extensible.

Josh Reeves :
So we can integrate with it in a lot of different ways, not just imports and exports, but build an API around it and then build some smart integration so that when we pull in something like the CSV export from Ramp, we can have our business logic added within that integration step and have it start doing different things for us to make sure everything is hitting the right GL account code, maybe rewriting the GL account code that's commonly misentered by a user. Some different things there.

Josh Reeves :
So it's not only just a data moving back and forth, but it's adding an extra layer of value add within that integration step. So we've found some really cool tools within there. Other systems that we've used as a documentation system that a lot of our vendors are still very old school being in agriculture. Our landlords that we work with, and even some big suppliers are still a little more old school and send in paper documents or just PDF documents rather than using like an EDI or an API to send us information.

Josh Reeves :
So we can actually attach documentation at every layer of our accounting system all the way from the vendor ID to individual GL transactions, GL adjustments, AP transactions. We can associate a document to any layer within the system.

Josh Reeves :
And that makes it very easy for somebody to go on vacation and then be able to pull up a vendor and see all that vendor's information when they're back filling someone that's out that week, rather than all of that living within an email system that they might not have had access to. There's other systems we use. We use Microsoft Teams to do a lot of communication and that helps with kind of that historical information.

Josh Reeves :
So our accounting team has our Microsoft Teams team that's in there. And anytime we add somebody new to the team or an intern for the summer, we're able to allow them access and they can see the historical conversation and everything that's been talked about. So being able to search through that information and that communication provides a ton of value to such a distributed team that we do have.

Alex Song:
I'd love to know, just in terms of your day to day... I mean, I can only imagine. I mean, what percent... I'm trying to create this pie chart in my mind. Okay. What percent of your time is spent on day to day stuff that will always happen day in and day out? What percent of your day is seasonal stuff? Right? So year-end, accounting taxes and whatnot, and also just harvest related work. And then what percent of your time is on more longer-term projects, maybe that spans over the course of weeks or months, but is not necessarily seasonal?

Alex Song:
I don't even know if that's comprehensive. I don't know, but those are the three buckets of finance related work that I have in my mind. You know what, how would you break that down?

Josh Reeves :
Yeah. That's a tough one to answer. For how small of a team we are, I do still get in a lot to the day to day, which I love being able to jump in and help with just a simple AP transaction if someone else is working on some other things, or there's just a need for someone to take care of that right now. So I love still be able to do that. I think of it as flying the plane. A lot of times when you think of 30,000 feet up, that's the long-term multi-year type stuff. And then you swoop down to 200 feet kind of like a crop duster does in our industry and yet you go take care of an AP transaction.

Josh Reeves :
So there's days where it's fun to do that. There's days where you want to focus on the 30,000 and you got to swoop down to 200 to go take care of a few things. But I'd say different times of the year from December through March, the long-term seasonal stuff, that's probably about 70 or 80% of it. That's getting ready for year-end, trying to get accounts closed up in December. And then once things are closed up, all the balance sheet items are reconciled and everything's ready to send up to the CPAs for review.

Josh Reeves :
That's a huge portion of January. And we take a little bit longer to close maybe than most organizations, so we don't necessarily have that need for the quick close. We'd rather have accurate information and we can still provide day in and day out financial information, just not necessarily closed up for the month. So that affords us the ability to spend a little bit more time and not have to put that stress on the team to get things closed up and book all your accruals for the next month within two days or anything like that.

Josh Reeves :
So that is really helpful the way we've structured things. But other times of the year, it's budgeting season kind of overlaps with tax season and year-end. So that long term, or that more seasonal stuff during those months of the year is about 80% of it. The rest of the year is where it's probably a good 30-30 or a third, a third, a third between all the different things, which is a pretty good balance.

Josh Reeves :
So mid-August, the farms are pretty busy. Our teams are a little bit slower, so it is more focusing on the long-term stuff and what kind of systems can we be putting in place now to get things ready for when we get to that crunch time more towards year-end? And what kind of new integrations can we build? Or what kind of additions can we make to our current integrations to make the data flow smoother and not have to adjust the file before importing or something like that.

Alex Song:
I always like to end with this question. 2022, rest of the year, what are you most looking forward to? What are you most excited about?

Josh Reeves :
Yeah. There's a lot of things that are coming down the pike outside from all the inflation issues, supply chain issues, things like that. The stuff that is exciting is in agriculture, we've been doing sustainability and regenerative ag for as long as I can remember. But now there's recognition coming from customers and from consumers that they want farms to be focused on those things. And a lot of it, we have been doing it and it just makes good business sense a lot of times, and being more conscious with the products that we use on the farm and the energy we use to grow the crops.

Josh Reeves :
It usually translates into something that makes economical sense, but we're starting to see that recognition from customers and consumers. And it's putting more focus on it, but we're excited that people are starting to look at that, and we see that as another way for us to differentiate ourselves and taking that challenge on and being even better at doing more with less. So we're excited about the initiatives that we have for sustainability in regenerative ag or regen ag that we're doing this coming year.

Josh Reeves :
There's some other really cool things. Along with that Tesla Semi is something that we've been keeping our eye on. And we have a particular trucking lane that we think is very applicable. It has a good elevation change in between where our farm is and our customer is. And we have a dedicated fleet that is a loaded truck when we have an elevation decrease and then an empty truck when we go back up to the farm.

Josh Reeves :
So something like a Tesla Semi with regenerative braking could be very energy efficient for that trucking lane, little alone the uptime that we would have and the carbon emissions that we would be saving being able to implement something like that on that trucking lane with the miles that we run. It's just a great fit, as long as we can get the payload that we need to still be economical in there. So we're investigating that and looking to see if that's something that can make sense for us.

Josh Reeves :
Another one is Starlink. So I guess I got to jump on the Elon train a little bit. But our locations are not in easy to get to places, and it's not easy to get internet there either. So this last mile internet problem kind of plagues our farm locations, and we've been able to make all this new digitization and new technology work. We have some operational programs that we use that can work offline and sync up a database. But the faster we can get good, solid, fast internet at all of our farm locations, the more that we can shift towards full digitization and not having to sync up an offline database. And then the last one is a new feature that Ramp has announced is the bill pay for the traditional CSV export user.

Josh Reeves :
So that is how we export data into our on-prem accounting package and we're looking forward to leveraging that software and seeing everything that we see on the receipts matching side of things and all the OCR and the smarts that you have built in to detecting those and matching up with a credit card transaction, seeing that same thing with more broad vendor management and pulling in invoices and getting those paid in a efficient way with either a paper check, which a lot of agriculture still is relying on those paper checks or an ACH that has a little more detail when we send the ACH versus kind of the traditional NACHA type file that we're doing with our current treasury solution.

Alex Song:
I promise you the Tesla Semi with the potential energy arbitrage, I think that's way cooler than what we're building for you on the AP. But I appreciate that. I appreciate the comments. That is definitely the first-

Josh Reeves :
Hey, it's good to have both, right?

Alex Song:
That's definitely the first time I've heard about the trucking thing. That's so, so cool. I guess I just want to leave with one closing remark, which is, look, Josh, thanks so much for believing in us. You were one of our earliest customers and it's been a tremendous pleasure to have you on our podcast, and it's been really, really cool to learn a little bit more about your farms and the agricultural sector and what you do. It's been tremendous having you here.

Josh Reeves :
Thank you. I appreciate the time today, Alex. And it's a two-way street when it comes to the Ramp relationship. Early on, we requested features and worked with the team there on the engineering side and they built those features out for us. It really felt like you guys were listening and building things out that were maybe just specific to us, that us being an agriculture versus a startup, maybe not other clients would've been able to utilize, but you guys jumped on it and built it out. It's definitely a two-way street that we've had great luck working with your team and seeing all the benefits that Ramp has. That's why we stuck with you guys and we're there from the beginning, and haven't looked back since.

Alex Song:
Thank you so much.

Speaker 1:
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