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farm2

Is Data Management Really Important?

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“Every company makes information management an afterthought.”

This was something a friend of mine said this weekend as we were chatting about everything from our
respective businesses, to politics and religion, to parenting. He qualified his statement using the vehicle
we were riding in as his example; “Do the (car) manufacturers build an information management system
into the dash of each car that they can charge more for? Of course not, because no one would pay for
it.” Essentially his message was that vehicle buying consumers are less interested in knowing and
measuring all of the vehicle’s varying functions and processes, they only want the basics. They just want
a vessel to get them where they’re going, one that looks good and is comfortable/fun to drive, and has
the power and/or efficiency they desire. End of story.

I challenged his theory as it would relate to other entities (especially large corporations,) and without
hesitation, he stayed his course. I really thought that larger corporations, those with hundreds of
millions or even billions in net worth, would have enviable information management systems and
processes. My friend said, “The focus is primarily growth & profits and how to accomplish it, with
information management being thrown together afterwards.”

I reflected on my own time in corporate Canada and the (sometimes) hodge-podge of reports I would
receive to (supposedly) help me better manage my branch or my client portfolio. Even though I didn’t
want to admit it, I knew my friend was right.

So, now you’re thinking that if big business doesn’t make its own information management a priority,
why should you? I’ll give you 2 words: working capital.

Strong working capital gives any business the cushion to make mistakes. It allows business to do things
less than ideal. This is not giving permission to be less than adequate, but it’s the reality of finance.
Lenders won’t run from a borrower that has done a less than ideal job of information management
when that borrower’s working capital is very strong.

“Very strong” working capital for your farm would cover 100% of your annual cash expenses. If your
farm’s working capital is not very strong, then the argument to not make information management a
priority is very weak. Very strong working capital is not permission to be lax on managing your data. No
entity in any industry should allow their business data to not be highly managed. The risk that this
creates is high, but the opportunity cost is higher yet.

Why are farm equipment companies, seed companies, fertilizer companies, chemical companies, etc. all
so interested in farm data? They recognize the opportunity cost of not being highly responsive to their
clients. You need to be interested in your farm data so you can be highly responsive to your business
opportunities. No one will manage your data but you.

Direct Questions

Are you allowing data management to be an afterthought? Do you have the working capital to support
this (lack of) action?

Have you considered the opportunities you could leverage if your data was highly managed? How many
opportunities have been lost over the years?

Do you recognize that saying “I don’t want those big multi-nationals to mine my data so I won’t compile
it” is a weak excuse?

From the Home Quarter

Large firms can get away with inadequate data management because they have the working capital to
cushion them from the results of less than ideal decisions. Small firms, such as your farm, likely do not.
(Small firms, by definition, are measured by market capitalization and number of employees, and usually
are those under $100million net worth and/or those with fewer than 100 paid employees.) Any
decisions on your farm that could be “less than ideal” will affect your working capital, positively or
negatively. The questions then become,

  • Was the positive impact to your working capital as good as it could have been (opportunity cost)?
  • Can your existing level of working capital handle a negative impact (risk)?

At the end of the day, highly managed data will support working capital and your ability to increase it.
Working capital will support your growth strategy and your wealth goals. The two are intertwined, and
in this current environment of high risk and tight margins, you cannot afford to be without either.

If you’d like help planning your data management process or strengthening your working capital, then call me or send an email.

Growing Farm FI

Farm Shows – Is Something Left Off the Table?

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Who doesn’t love to attend the farm shows that scatter the prairie? From the latest equipment
advancements to distinctive new tools to cutting-edge technology, the exhibitors’ wares are tantalizing.
This isn’t unique to farmers; it’s human nature. There are tech shows, auto shows, fashion shows…the
list is endless. But I challenge any other industry’s show to match the diversity that you find at a farm
show.

Last week was the 2015 edition of Canada’s Farm Progress Show in Regina. I typically invest time there
and at the Western Canadian Crop Production Show in Saskatoon. Both are elite events. Both generate
millions and millions of dollars in economic benefits from immediate sales and future trade. And both
are primarily focused on production. (This also applies to Farm Tech, Manitoba Ag Days, Agri-Trade, Ag
In Motion, etc.)

What if we held a 3-day show that focused on management of your business:

  • Would we get 50,000 people coming through the turnstiles?
  • Would we see 500 exhibitors?
  • Would attendees mark their calendar a year out to ensure they didn’t miss next year’s show?

I would suggest the answers are: hell no, not even close, and that’s about as likely as a snowman getting
a sun tan. We all know why: management is BORING! Production is sexy! Grain marketing can be a thrill
ride! Managing and evaluating data…? Yuck!

graph14

 

 

 

 

 

 

 

 

 

 

 

Business cannot operate without strong management. Lenders will not offer credit to poor managers.
Vendors will become less interested in doing business with poor managers. Employees won’t want to
work for poor managers. Imagine trying to operate your business without those three critical
factors…never mind trying to GROW your business!

Some farm shows have a smattering of business management features in their schedules by offering a
part day to focused speakers and/or topics around management. There are a number of players at these
shows who offer, or specialize in providing, management advisory services to farm businesses.

Direct Questions

Would you attend a farm show that focused primarily on managing your business?
Do you put as much focus on management as you do on production or marketing? If not, why not?

From the Home Quarter

I’m not picking on the farm shows as they are. I’m just using them as an example to contrast between
what is and what isn’t drawing crowds. What I am doing here is challenging the perception of the
players in the industry to increase their interest and their efforts towards management, so that it might
one day get as much attention as production.
If you’d like help planning your farm for business and personal success, then call me or send an email.

blindside

The Blindside

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No not the Hollywood movie, but the way prairie farmers have been blindsided by these late spring
frosts.

I haven’t done the research, but it’s fair to say that we’d be hard pressed to recall a year when we’ve
had such a string of days where the daily low temperatures are well below freezing. Word has it that
farmers in many areas now are beginning to prepare for reseeding.

Show of hands: how many built reseeding into their 2015 crop plan? I didn’t think so. How many of you
who are reseeding are rejigging your budget and projections? It better be all of you.

It’s not just the extra cost of seed, fuel, wages, etc. It also means later emergence and maturity which
will impact yield, and maybe quality. For how challenging it has been to deliver grain in the last few
years, if late maturity means you now cannot deliver off the combine in August or September as per
your contract, will you be forced to wait until December, or even March? Have you considered how this
could impact cash flow?

Don’t get lulled into oversimplifying the adjustments to your projections. It’s easy to just add in cost for
more seed. But a couple bucks an acre here for labor, and a couple more bucks there for fuel on the
extra pass add up. And I don’t know of too many 2015 projections that have much wiggle room.

Direct Questions

Have you provided realistic amendments to yield and price projections based on reseeding dates and
rates.

Have you considered how the later seeding dates due to reseeding will affect your new crop delivery
opportunities, and therefore, your cash flow?

Do you have sufficient working capital to get through this unplanned extra cost?

From the Home Quarter

Anyone who is dealing with Mother Nature’s blindside string of frosty nights will be significantly
impacted in all 3 critical areas of their farm: production, marketing, and financial management.
Consequentially, the other critical areas of your business will also be affected: family, wealth, and
potentially your health.

You must, at your very first chance, update your projections for 2015 with realistic and conservative
information. And for goodness sake, let your lenders know ASAP, not just next spring when you’re doing
your annual review.

This bolsters my argument for strong working capital. Every farm, your farm, is at risk of a blindside
attack at any time from a variety of sources. Adequate working capital is the best way to ensure you’ll
get through it.
If you’d like help establishing strategies to ensure you build adequate working capital,
then call me or send an email.

Cost of Production

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I got a little worked up last week when I saw a tweet that read “Cost of production matters in 2015 –
The Western Producer” and included a link to the article. Even though that wasn’t the article’s title, I still
had to sit down and scribe this.

Let me be very clear: cost of production matters every year. Period.

Cost of Production is the most basic principle that must be employed when making marketing decisions.
If you don’t have a clear understanding of your COP, then you are putting the survival of your business
at grave risk. Why? Because how would you know if you’re selling for a profit or not?

 

venne2

The WP article states, “A 38 bu. (canola) crop and a $9.45 price could yield $70 per acre before labour
and equipment costs.” That’s nice, but why would we not include our labor and equipment costs? Will
the crop magically seed and harvest itself?

COP only begins with your seed, chemical and fertilizer costs. It must also include all other operating
costs AND your fixed costs.

Now work back from your actual, or projected, yield and we come to the real figure that matters: unit
cost of production.

If you know that it costs your farm $6 to grow a bushel of canola, isn’t a $9/bu selling price a nice
target? By the way, that’s 50% ROI.

 

Direct Questions

What was your gross margin per acre in 2014?

Do you include your fixed costs when working out Cost of Production calculations? If no, why not?
How do you know what is a profitable selling price for your crop if you don’t know what it cost you to
grow it?

Do you discover whether or not you’re profitable only when you receive the accountant prepared
financial statements?

From the Home Quarter

In the simple calculation of “Revenue – Costs = Profit,” how can we be expected to make profitable
decisions without intimately knowing our costs? Every business that produces anything, from ocean
freighters to widgets, knows exactly what it costs to produce one item. Why doesn’t every farm know
their costs the same way?

As a special offer to the readers of this blog, I will conduct a Farm Financial
Review™ for up to 5 qualifying farm businesses at $475 (normally a $875 value.) This will include a
review of your 2014 financial results and a Cost of Production Analysis. Work must be booked by the end
of January and completed by the end of February. Please call or email for details.