trees

Always Growing…Growing All Ways

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“Think of your business like a tree. What is a tree doing all the time? It’s growing. And if it’s not growing,
what is it doing? It’s dying. Your business is the same: if it’s not growing, it’s dying.”

I made this statement to a <2,000ac farmer at Canada’s Farm Progress Show in June 2014. He gave his
head a quarter turn with the slight tilt that indicated he thought I was nuts. Remember, this was still in
the period where Main Street of many small towns looked like a drag strip when word got out that there
was land for sale. Farm trucks from all over the area were burning rubber to get to the banker as fast
they could to get the loan and make the deal before anyone else. It was a period of “growth at all costs.”
His reply was, “I don’t want to grow. I’m happy with my land base as it is. My debts are almost gone,
why would I want to get back into debt? Then I’ve got to buy more equipment, hire some help!”

So I quantified my statement. “Growth doesn’t have to mean acres. There are many ways a business can
grow. If a farm can increase gross margins from better marketing, isn’t that growth? If a farm can
increase profits from better awareness of cost control and management of those costs, isn’t that
growth?” Reluctantly, he agreed.

Ever since the boom in ag took hold in 2007, farmers have increased acres and increased equipment
lines faster than ever. The truth of that statement can be read in the smile of every farm realtor and
farm equipment salesperson on the prairie. But why when we think of “growth” do we limit the scope of
our thinking to “size?”

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Increase Operational Efficiency

This is purely process management. How can you make improvements to processes on your farm that
will increase overall efficiency? For example, on our farm we run a single shoot drill. In order to apply
the volumes of fertilizer that our agronomic plan requires, we need to cover the entire farm twice: once
with a fertilizer blend in a band, and a second pass with seed & the fertilizer blend for the seed row.
Increasing operational efficiency for us could be trading up for a double shoot drill (although I’d prefer a
triple shoot), using a larger cart to reduce the frequency of stopping to fill, add a liquid kit to the existing
drill, or even utilize the high clearance sprayer to apply liquid fertilizer later in the growing season. There
are more options, but you get the drift. Naturally, each option has pros & cons and must be evaluated
from a management perspective to measure cost versus benefit.

Increase Size and Scale

Bigger is better, right? Not always. Are you confident that your net profit per acre is linear? What I mean
by that is, if you currently enjoy a net profit of $75/ac on your 3,000ac, will your net profit per acre
change if you increase to 6,000ac? 7,500ac? 10,000ac? The answer is Yes, it will change. Net profit per
acre is not linear and if you haven’t created realistic and honest projections when considering scaling up
your farm size, you might be surprised at the end of the year.

I often get asked by people who grew up on small farms in the 60’s and 70’s about farm size and just
“how big is too big” when it comes to farming in current environment. Is it 5,000ac, 10,000ac, more? I
always answer the same way, “I can tell you exactly when a farm is too big. It’s the moment that a farm
has expanded beyond the owner’s management capability. For some that’s 400ac, for others that
40,000ac. It depends.”

Increase Gross Margin

This one is easy to identify, but not always easy to do. Easy to identify because this is where profitability
on your farm begins. Not always easy to do because there are many factors out of your control. But as
you’ll recall from Growing Farm Profits Weekly Issue #2, I won’t dwell on what we can’t control.
Focusing on what we can’t control is passive and it concedes that outcomes are beyond our control.
Plus, it’s total BS.
Increase your gross margin by doing one, or all, of the following:

  • Increase your yields and/or quality
  • Reduce the costs of your direct inputs (seed, chemical, fertilizer)
  • Increase realized prices for your crop

Reduce Costs

Beyond the direct inputs as described above, cost control is a major issue on a lot of farms today. It
begins first and foremost with knowing your costs. How much are you spending on equipment, hired
help, fuel, parts & repairs, interest, etc? These are all controllable costs, and if you haven’t had a handle
on them to date, the current environment of narrow margins dictate you better get on it soon.
Now I’m not suggesting that you eliminate these costs, because you can’t if you want to keep farming.
But knowing where you can “trim the fat” is critical, and it also relates to operational efficiencies.

Direct Questions

Have you limited your view of growth to only “size and scale?”

How many different growth metrics can you identify on your farm?

What is the threshold of your management ability? Have you exceeded it, or do you still have capacity to
expand?

If you reduced each of your controllable expenses by a mere 5%, how much would your net profit
change?

From the Home Quarter

Growth as it relates to business does not purely mean “get bigger.” Remember that the purpose of your
business is to increase wealth, and size does not have a direct correlation to wealth. Size is one factor,
but we must not ignore all the others. I believe in the mantra that “better is better before bigger is
better.” Growth can manifest itself many ways, and we must examine all ways to grow if we want to
always grow.

Nurturing Your Business

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In Issue #1 of Growing Farm Profits Weekly, we introduced how nurturing your business was one of
many critical factors that can affect your business success. This week, we’ll look deeper at nurturing
your business and how to leverage this often overlooked aspect of owning and operating a successful
enterprise.

Increasing wealth is the goal of any business, and only a healthy business can deliver accordingly. And
how you view wealth can be as unique as you are. The obvious answer is “profit at the bottom line,” or
“strong equity,” but some will argue that wealth is “discretionary time.” How do you define “wealth?”
Give it some thought; it will provide clarity in how you run your business.

There is a healthy ratio of nurturing that applies to 3 key aspects of your business:

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Crop

As discussed in the previous issue of Growing Farm Profits Weekly, your crop gets substantial amounts
of your attention because you know that investing significantly in your crop will grow you a better crop.
And a better crop leads to better marketing opportunities, which lead to stronger cash flow and higher
margins, which lead to profit. Simple as that? If only…

Assets

Yes, this means the tractors and combines, the trucks and trailers, the sprayers and swathers…the equipment on the farm needs to receive adequate nurture; these are the tools of your trade, and they need to perform when you need them. This is why you service regularly, send equipment into the shop for a certified tech to go through it in the off-season, and consistently use recommended operating procedures to ensure you minimize the risk of downtime.

But how much time do you spend nurturing your “other” assets?

Your HUMAN ASSETS (ie. your family and hired staff) require nurturing too. Unlike a piece of equipment
that runs the same whether you yell at it & operate with great disregard or if you treat it like a treasure,
your human assets often require a specialized approach. Just like you can relate and react better or
worse with certain people and their approach, your HUMAN ASSETS will also respond better or worse to
your approach. And if you view your human assets with the same regard you view your equipment, or
with less esteem than you give your equipment, then you’d better take a long hard look at your business
because it will be vastly different in a year or two.

If we consider the cost of owning/leasing and operating your farm equipment, it’s a safe bet you’d be in
the range of $40-$90/ac. Yes, that’s a big range, but there are big differences in each farm’s expense
management (we’ll tackle this in a future issue.) Please note this does not include capital outlay for the
purchase price. The cost of ownership/lease and operation looks at operating costs (fuel, oil, repairs,
etc.) lease costs, and “real” depreciation (not necessarily what CRA allows you to claim as a non-cash
expense.) We also consider custom work when calculating machinery cost per acre. Now that we’ve
established that your iron has a significant cost, why would anyone consider putting a $15/hr operator
in it? In one hour, you’ve paid an operator $15 to run equipment across upwards of 25ac or so that can
carry a machinery cost of $500-$1,000. Again, if you view your human assets as dispensable, this isn’t a
surprise in your line of thinking. But then it also shouldn’t be a surprise when that same operator isn’t

too concerned about stopping to rectify those plugged hoses on the air-drill.

If you’ve spent time building specific processes around HR management, you already recognize the need
to nurture your human assets. Congratulations, you’re on your way to ensuring the future success of
your business. Some processes you will want to implement are:

  • Recruiting, interviewing and selection
  • Performance management
  • Wages and incentives

There are many more items for this list, but we’ll save that for a future issue.

Relationships

While grain farming in North America is a commodity based industry, successful operation of your
business requires your adeptness at managing several key relationships. These relationships cover the spectrum from your professional advisors all the way to the part-time weekend counter staff at the equipment dealer.

I’ve seen some who give their least regard to the relationship with their accountant. True story; they see
the accountant as a “necessary expense” in order to file the “necessary tax forms.” Sadly, there are
many farmers out there who share that view. They do not recognize the importance of evaluating
business results against expectations or projections. I suppose these are also the businesses which do
not make business plans or projections.

How about service relationships? It’s easy to commoditize the grain buyer, the inputs retailer, or the fuel
supplier because there is always competition vying for your business. But if you don’t nurture the
relationship with your fuel supplier, what are the odds you’ll get that urgent May long-weekend
delivery?

Do service relationships extend to your staff? Do you pay them to provide you and your business with a
service, or are they integral members of your farm team? What do they need? What motivates them?
Why are they working for you and not somewhere else? If you don’t know the answers to these
questions, you’ve got 4 more days this week to find out…get on it!

Direct Questions

How do YOU define “wealth?”

Are you getting the most out of your crop? By that I mean “are you maximizing the most efficient
processes” available to produce your crops? It’s not about the highest yield at the coffee-shop; it’s about
gross margin (yet another future issue.)

Have you calculated the ROI on nurturing your human assets relative to the ROI on your iron assets?
What processes and procedures have you implemented to support your efforts to nurture your human
assets?

Ask yourself how you value the relationship you have with the following:

  • Agronomist
  • Business Advisor
  • Accountant
  • Banker
  • Lawyer
  • Commodity Markets Advisor
  • Equipment Dealer
  • Inputs Retailer
  • Fuel Supplier
  • Family
  • Staff

Is there one way you can strengthen each relationship this month?

Are you nurturing one aspect of your farm to the detriment of another? Why? Have you calculated the
net cost of this practice?

From the Home Quarter

We invest our resources in a manner that we expect to provide us with a return. And no matter if that return is tangible or intangible, it all creates the net benefit to our business: positive or negative.

You’ll notice I will rarely refer to the weather in this writing because we cannot control the weather. As a
business advisor, I focus on what we can control. For example, how do we invest and allocate our
resources: financial, intellectual, human, equipment, and most importantly, time. I believe in Alan
Weiss’ theory that “wealth is discretionary time.”

For any business owner to achieve maximum discretionary time, he/she must recognize what they do
best, and get help with the rest. Business owners must nurture their business in such a manner that
maximizes ROI, because as Alan Weiss says, “real wealth is discretionary time, but money is the fuel for
that wealth.”

Don’t get so caught up in earning money that you have no wealth.

Profit is not a swear word.

Time is the most precious, non-renewable, intangible resource we could ever spend. Treat it as such.
Growing Farm Profits™ provides topical and pragmatic business management tips and tools for primary
producers in Canadian agriculture.