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Developing Financial Management Skills with Root Capital (part 1)

Post by Ola Leszczynska

Financial management. Such a fundamental thing. Absolutely indispensable. Every kid knows that no business can stay in the game without good planning, appropriately using and controlling its resources, right? Well, maybe kids believe it and so did I. A part of my growing up, however, was realizing how badly organized even million-dollar companies can be. Honestly, knowing just a tiny bit of the mess behind the scenes, I still stand in awe of the fact that the world somehow goes round.  

Going into the coffee business, I recently came across an interesting article where the author deplores the lack of tools and information available to help coffee roaster and retailer owners manage their business:

Did you know that until a small SCA survey was completed in 2015, there was no formal study of the specialty coffee industry financials? In just about every other industry you can get great data about nearly every aspect of it. But in specialty coffee, the information collection has been simply lacking. 

Quite surprising, isn’t it? Probably the fact that the co-ops we work with lack some financial management skills is less astonishing. The reasons for this situation are plenty. In some cases, once the cooperative had a good thing going, it simply stopped looking for better practices and fell into habit. Many farmers, especially from the older generation, had little access to education. Some of them would like to catch up, but with their tight schedules it would require time-stretching skills, plenty of self-motivation and iron discipline. Oftentimes, however, these are not the skills that are missing. After all, most of the farmers do have hands-on experience in sales, understand the market forces and apply many business rules. What they lack is specialized economics vocabulary, better planning and organization.

As much as we wanted to work on financial management and strategic planning with the farmers, we knew we were not in a position to do it. One of De la Gente’s principles is to not interfere in cooperatives’ internal issues. They are and should remain autonomous organizations and we are their business partner, not by any means an expert in financial training. Moreover, collaborating so closely we got used to some solutions, not seeing our own mistakes and shortcomings. Therefore we decided that the best way to approach the problem, but also to get an independent opinion about the condition of our partner co-ops, would be to invite a professional outsider with extensive experience in the field. That’s how our cooperation with Root Capital started.

Root Capital is a nonprofit social investment fund working with small and growing agricultural businesses in economically poor and environmentally vulnerable places in Africa & Latin America. They target businesses which are already too big for microfinance, but still unable to secure credit from conventional commercial banks. It didn’t take them long to realize that access to credit as a stand-alone service was often insufficient to assure long-term prosperity for farmers, as many borrowers weren’t able to manage credit effectively. That’s why in 2006 Root Capital launched an advisory program with a goal to deliver financial training providing participants with the tools necessary to analyze data, manage and report their financial performance, achieve profitability and sustain growth of their businesses.

Since their founding in 1999, Root Capital has loaned $791 million to more than 546 agricultural businesses in over 30 countries and delivered financial management education and technical assistance to 600 grassroots businesses across 19 countries. We couldn’t ask for a partner who would understand smallholder agriculture better. 

Members of Café Artesanal San Miguel co-op taking notes during one of the workshops.

Members of Café Artesanal San Miguel co-op taking notes during one of the workshops.

After a few discussions we decided that the training will be first provided to two of our partner co-ops: Café Artesanal San Miguel and I’jatz. The program started with a detailed diagnosis of needs to identify and evaluate the strengths and weaknesses of the cooperatives’ capacities and systems. For each organization, Root Capital’s advisors carried out a thorough assessment of 6 functional areas of work: administration, financial management & accounting, credit management, commercial management, technology & production and services to members & impact. From all the categories, both I’jatz and San Miguel co-ops showed the best performance in the technology & production management. The high score resulted from the adequate coffee processing infrastructure as well as experience and qualifications of the workers. Additional credit was given to Café Artesanal San Miguel for maintaining constant communication within the co-op through monthly meetings which allow to coordinate the work and include all members in decision-making. 

Unfortunately, the results in other areas didn’t look as well. The most significant weakness identified was a lack of long-term strategic planning, including solid sales and business plans. Moreover, the consultants pointed out limited accounting which reflected only basic operations. There was a lot to work on, so based on these outcomes Root Capital developed customized content for a series of group workshops. The training plan focused on the missing skills and practices the farmers shall learn and implement to be better positioned in the market. Priorities? Financial planning, analysis and accounting. The detailed topics included, for example: improving the governance of the cooperative, harvest forecasts, cash flow management, creating and implementing adequate financial controls and reporting, development of quarterly financial statements for short- and long-term production planning, accurate bookkeeping and software-based accounting systems.

This was our starting point in June. The workshops have been running and enjoyed popularity since then. Stay tuned to learn what the training looks like in practice and what impact it has had on the farmers.  
 

If you would like to support the next series of workshops planned for 2018, please click here.

Go to part 2 >>>