equipment efficiency

Managing Operating Efficiency

/0 Comments/in , , , , /by

“You can’t manage what you don’t measure.” It’s been said time and time again, by me and many others. Here is an example that should get everyone buzzing.

A client of mine recently shared a sample of information that they collected from their equipment. The information shared with you is specifically from their sprayer:

Sprayer Utilization pie chart

 

A simple pie chart creates an “A-Ha Moment” that no one saw coming. I am sure you can all imagine the conversation around the table when this information was presented. What would your response be if this was your data?

As the discussion progressed, it became clear why the number of hours spent idling was what it was:

Admittedly, no one was tracking the number of idling hours that were attributable to any of those 4 points, but there was little argument that loading and rinsing contributed the largest share to the number of idle hours.

What can be done with this information? Since this sprayer is on a lease contract, the “cost per hour” is very easy to calculate. Now that we know the cost per hour of running this sprayer, we know how much all that idling costs. Now let’s go back to those 3 potential responses to first seeing this original data:

What this client of mine is now doing is evaluating the cost/benefit of putting a chem-injector system on their sprayer. Such an addition will:

To truly test this option, we would need accurate data over the period of at least 2-3 growing seasons measuring:

Naturally, very few, if any, farms record this data. Yet we can clearly see the effectiveness of having such useful information available to make the most informed decision possible. Without it, we are using emotion and our best guess. Obviously, our best guess can be way off, as is seen in just how much this sprayer spent idling in 2015.

Direct Questions

How are you managing and using your business data?

If you are not measuring it, and therefore cannot manage it, what are you using to make business decisions if accurate and useable data is not available?

How many decisions relating to improving efficiency can be made on your farm with better data?

From the Home Quarter

The report that contained this information (including the pie chart above) provides much greater detail to the goings on of that one machine than just usage by hour. Some of it, like the 8,970,000 yards this sprayer has traveled is not necessarily useful, but knowing that the 92.2hrs spent in transport used 910 gallons of fuel is.

While laughing and pointing around the table when comparing similar data from the combines, and identifying “who is the best combine operator” is interesting and fun, it is the action that comes out of the data that has the greatest impact. Positive action can and will impact your bottom line…but then so will inaction.

even emergence

Farm Financial and Business Information – Best Practices

/0 Comments/in , , /by

Recently, I read an article that listed the “Top 10 Ag Data Platforms of 2015.” I recognized only 2 of them. Clearly, the choices available to producers in finding and using an appropriate data template is abundant. In recognizing that this does pose challenges in trying to decide which one to use, several of them offer a free trial period: use the service for a set amount of time and if you’re not happy, they’ll refund your fees. Can’t lose, right?

Like so many other aspects of life and business, going on the cheap, finding the lowest cost solution, spending as little as possible often has the opposite effect than what is desired. When I needed steel toed work boots for the farm, I used to spend about $120 for “cheap” boots from the discount or department store. The last pair I bought were Red Wing and cost me well over $300. They outlasted 2-3 “cheap” pair and my feet were far more comfortable during those long 18 hour days at seeding, keeping me less fatigued. Was there greater value in the more expensive boots? You bet there was!

If cost is your #1 concern when considering options for managing your data and business information, then please consider why you buy the name brand hand tools, cars, trucks, and farm equipment that you do? If cost was the only concern, wouldn’t we all be driving cheap $10,000 cars, using WalMart wrenches made in China, and farming with Belarus tractors?

Find what works for you and just use it. If you don’t know what works for you, then ask for help. I am meeting with an office organization expert this week to get the help I need in creating a work-space that is better organized and more suited to my work flow.

Last week we discussed “Using Your Financial Information,” but if you aren’t managing your information adequately, it will be difficult to use, and leave you to make decisions with information that is not accurate. We expect our financial institution to provide us with accurate statements, and we’d be pretty upset if the information they provided us wasn’t spot on. We need to have the same expectation of ourselves.

If doing your own income and expense entries, set aside 1 hour twice a week to input accounting data. I used to leave mine until it was time to file GST every quarter. I have found that there is value to letting my accountant’s office handle this task so I can focus on my business. In 2016, I’ll be leaving the data entry to my accountant.

The first piece of information I prefer to offer to new clients is a Unit Cost of Production calculation. This requires current and accurate figures for crop inputs, yield and price, operating costs, and overhead costs. To know what it costs to produce one bushel of canola or one tonne of barley on your farm requires accurate info, otherwise it’s still a guess! Using this accurate information is very empowering!

Here is a list of Best Practices to consider implementing for managing your farm’s financial and business data:

  • Research and fully utilize an agronomic data platform; ideally it would require minimal manual entry on your part by gleaning info from your tractor/sprayer/combine consoles, and also easily convert to your accounting software.
  • Manage income and expenses regularly: don’t simply fill the shoe-box! Designate 1 hour twice per week to data entry.
  • Evaluate the worth of your time relative to tasks you do, and delegate accordingly.
    (IE. if you’re the CEO helping the hired men sweep out bins, you’re not allocating your time very well!)
  • Consider using outside help, or a designated employee, to manage date entry if you deduce that your time is better spent elsewhere.
  • Keep income & expenses, assets & liabilities, and cash flow records current each month.

Direct Questions

How are you best utilizing the resources you have available to compile your data? Are you using the right people, or slugging through on your own?

What data and information management tools are you using? Do they satisfy your needs? How are you using the reports they create?

Does managing financial information take a back seat to other tasks? What do you need to make it more of a priority?

From the Home Quarter

Choosing an information management platform is a daunting task. But it is less daunting than trying to make informed decisions with little or no usable information. The learning curve is steep at the beginning, yet once you’ve done all your set-up, keeping it updated is relatively easy. Making information management a priority can be less easy, depending on mindset. The benefits you’ll enjoy from being equipped to make informed decisions immediately as required are similar to the benefits you enjoy from getting your entire crop seeded early into warm moist soil. Even emergence on an early seeded crop is as satisfying as highly informed strategic management decisions…and just as important!

analyzing finances at the bin

Using Your Financial Information

/0 Comments/in , , , /by

Last week, we described how compiling your financial information will be beneficial to you in being able to analyze your previous year’s results so as to equip yourself in making informed decisions in the current, and future, years. This week, we discuss how to use that info.

Critical Balance Sheet Metrics

  1. Your Current Assets should be greater than your Current Liabilities by an amount that at least matches your cost to put in next year’s crop.
    Ideally, the difference between current assets and current liabilities should at minimum match your entire costs to run your farm for one year.
  2. You want your Total Liabilities to be no more than your 125% of your equity after net worth adjustments have been made.
  3. ROE is an acronym for Return On Equity. It is your net income divided by your net equity. Are you happy with the returns you’ve earned in each of the last 5 years?

Critical Income Statement Metrics

  1. First and foremost, is your Income Statement accrued? You can tell if you find an adjustment, up or down, to your income that would be labelled “inventory adjustment.” If your income statement is not accrued, call me for a quick description on how to do it yourself. It’s easy.
    Accruing your income statement is the only way to truly measure your profitability from the crop produced in a specific year.
  2. Did you have a profit? EBITDA (Earnings Before Interest Taxes Depreciation & Amortization) is a very important figure to know. It represents your profitability from operations; it shows you can generate profits. The calculation is Net Income + Interest Paid + Taxes Paid + Depreciation Expensed.
  3. Now that you’ve got EBITDA calculated, divide it by the following figures: Current Portion of Long Term Debt (found on balance sheet) + ALL interest paid (found on income statement) + ALL lease payments made (found on income statement). This is an important indicator for your lenders. This figure indicates to them your capacity to meet your financing obligations.

Critical Cash Flow Statement Metrics

  1. Cash Flow from Operations divided by Gross Sales indicates how many dollars in cash your business generates from every dollar in sales. The higher the figure, the better.
  2. Cash Flow from Operations divided by your “Property, Plant & Equipment” indicates how well your business uses its hard assets to generate cash.
  3. Cash from Financing divided by Cash from Operations indicates how dependent your business is on financing. The higher the figure, the more dependent on external money.

Solvency Calculations

Liquidity Calculations
Liabilities / net worth current assets / current liabilities
EBITDA / loan payments, interest & leases current assets – current liabilities

 

Direct Questions

Does the thought of doing such calculations overwhelm you, scare you, or just plain bore you? If the urgency of knowing these numbers doesn’t strike urgency into you, are you willing to ask for help?

How would you describe the benefit to your decision making if these figures were readily available?

From the Home Quarter

The comment has been made time and time again: “It’s easy to make money in the good times.” With tighter margins of late, more attention than ever before is being paid to management and finances. These calculations above are only a few of the measurements that you can take to gauge your financial strength or weakness.

And if you need a hand figuring out what to do next, contact me any time.

Financial data

Compiling Your Financial Information

/0 Comments/in , , , , /by

The proverbial shoe-box, or an organized file package.
Maybe a shoe-box that supports accounting software.
Maybe it’s a fully completed accounting software package that includes all depreciation expensed and dividends paid.

For those of us on a December 31 year-end, the calendar has turned and the clock is ticking. If you haven’t had a planning meeting with your accountant prior to now, it’s likely too late to act on some of the options you had.

When are you able to get your information in to your accountant? My mentor threw down the gauntlet last year when he showed me that his accountant had his financial statements prepared a mere 28 days after his fiscal year end. That’s some WOW factor there! For my file, I’m shooting for thirty-five days or less; target: early/mid-February.

For me to help my accountant meet my goal of a 35 day turnaround, I need to provide him with accurate information as fast as possible. I need to provide clear information on income and expenses (not a shoebox full of invoices and receipts.) I need to provide a detailed report on changes in my fixed assets over the year, my accounts receivable at year end, etc. The better the quality of info I provide to him, the faster he can get my file off his “To Do” pile and onto the “Done” pile.

It is a typical comment made every year: we have to wait for the bank, and other creditors, statements before the final month report can be ready to send to the accountant. I’m not waiting. I’m logging into my online banking and retrieving transaction info right away. The details are there, so why let this time go to waste?

When getting your taxes and reporting completed as quick as possible, the benefits are many:

  1. You will get ahead of your accountant’s busiest time, which  makes him/her happy!
  2. You will get your bank annual review done earlier and on time, which makes them happy!
  3. You will receive your financial reporting earlier allowing you to fully analyze last year’s results and make improved decisions for this year accordingly.
  4. You will be equipped to seek new credit before seeding, if required.

The government has filing deadlines for taxes, the bank has reporting deadlines for your annual review. To receive your December 31 financial statements in August because it took you so long to get your info in to your accountant provides you, and your financial partners, little use. The information in those reports is too old because so much has changed on your farm since the date on the statements. Would you write a cheque in August based on the balance you see in your December bank statement?

Direct Questions

What systems and processes do you have in place to compile your business and financial information as quickly and accurately as possible?

How are you using your financial information to make business decisions?

Have you discussed with your accountant as to how he/she prefers to receive information from you? Making their jobs easier will get you higher quality reports much faster.

From the Home Quarter

Getting your year-end completed quickly will help you be more profitable. When your statements are early (or at least on time,) you create opportunity with your creditors. Opportunity with your creditors creates strategies for growth (and possible lower borrowing costs.) Strategies for growth create opportunities to expand, increase efficiency, control expenses, etc…all which lead to greater profitability.

And it is all starts with getting your information compiled and delivered to your accountant fast and on time.