Renting Farmland

Are You Renting Farmland?

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An online article published by Country Guide about land rent contained some points that many of us have pondered. Much of the article centered on a lack of useful data on rented land, such as recent crop rotation & yield, pest pressure and pest management, soil type, residual fertility, or recent rental rates.

While this poses a challenge to those who insist on making the most informed decision possible, recent history indicates that the appetite for more land to increase a farm’s size and scale has grossly overshadowed rational analysis when making a decision whether or not to rent a piece of land. The article quoted a 2012 survey that was funded by the Saskatchewan Ministry of Agriculture which tabulated approximately 2,000 cash and share rent agreements. The article reads, “The company hired to do the survey found an astonishing range of rental rates, ranging from an almost unbelievable low of $6.25 an acre to a high of $140.60 an acre.” It’s probably fair to say that $6.25/ac isn’t “almost unbelievable,” but straight up unbelievable. My vote is that some wise-guy wanted to skew the data and provided a false figure. It’s the high figure, the astronomical $140.60/ac, that is the head-scratcher. I have lost count of the number of pencils I have used to try to pencil out a profit at that rental rate. It requires the perfect storm of yield and price to marginally make it work. The guys paying this kind of rate must have some sort of magic pencil I have yet to find.

Here’s where it really gets good. Another excerpt in this CG article reads, “In the short term, taking on more land that won’t necessarily pay for itself might still be a winner in the farmer’s eyes in that light, especially if it allows them to spread fixed costs and labour costs over a larger land base.”

So let me take a shot at paraphrasing:
“Our fixed costs are really high, so in order to justify the bad decisions we made when we took on too much debt and allowed other fixed costs to rapidly increase, we will make another bad decision by overpaying for land that won’t make us any money so that it makes our fixed costs look better by spreading them out over more acres.”

What?

OK, that was wordy, let me shorten it:
“We’ve got all this equipment so we need to run it over more acres to justify having it.”

Still too long and soft? Alright, one more try:
“Pride is more important that profit.”

Eww, ouch! That stings!

But if the thinking is that we must take on more land in order to justify high fixed costs (usually for shiny new equipment) then it is clear that the pride of possessing such equipment and the pride of farming “x” number of acres is more important that being profitable!

Here are my 3 “Growing Farm Profits” Tips for renting land:

  1. Know your costs.
    By knowing your costs, you can easily determine what is or is not a reasonable rent to pay and still remain profitable. Without knowing your costs, you’re shooting from the hip…in the dark.
  2. Invest in assets in the correct order.
    Taking on more equipment than you need, then frantically trying to “spread it out” over more acres to justify the decision is backwards. It’s like buying a seeding outfit before buying a tractor: you might end up paying more for the tractor you need, or buying more tractor than what is required because of a lack of available selection. Secure your horsepower first, then find the drill to pair to it.
    Secure your land base first, then invest in the iron to work it.
  3. Nurture your landlord relationship.
    Let them know how your year was. Explain your farming practices. Help them understand how profitable their land really is. This goes a long way to establishing goodwill at renewal time.

Direct Questions

How much at risk is your working capital if your fixed costs are too high?

What steps are you taking to ensure your investment in rented land accentuates your profitability and not diminish it?

Is the goal to be the biggest or the most profitable?

From the Home Quarter

“Better is better before bigger is better” is a phrase that I hang my hat on quite regularly. While I cannot take credit for coming up with that one, it is so remarkably accurate in its simplicity.

If we can all acknowledge that threats to working capital should be our greatest concern in the short-to-medium term, then we must also acknowledge that adding unprofitable land in an effort to justify fixed costs will only accelerate the bleed of precious working capital.

Shaking Hands

The Farmer-Banker Dating Game

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When I went back to college in my mid-20’s, a mature student by definition, it was because I found a course and career path that would allow me to bridge my passion for agriculture & farming with my finance minded brain. My goal, as my friends and family will attest, was to be the kind of ag-banker that was a partner, not a foe, of the farmer.  My view at that time, which was a time that we were in the depths of a very real farm crisis at the end of the 1990’s, was that farmers “generally” had a poor view of bankers. I aimed to change that perception.

Now as a management advisor, I still aim to bridge that gap. I invest myself into building good relationships with bankers so as to have a list of qualified partners whom I can refer in to my clients for financing requirements. Here are the top 3 points to remember when considering a new bank relationship.

 1. Perfection is Not Required on the First Date

The initial meeting is a first date. Think about it: you’ve met someone you’re interested, you’ve had an interesting conversation that identifies some common interests, and you eagerly and excitedly agree to go on a date. On that first date, it’s a lot of “what do you do for fun?” and “what kind of music do you like?” If you’re really getting into it, you might discuss your date’s political views! You aren’t deciding on the first date if you will or will not marry this person; you’re just hoping to learn enough about him/her to decide if you want a second date.
The initial meeting with a new prospective banker is a first date. You’re getting to know each other. The banker wants to know how your farm is doing financially, how you manage & make decisions, and what you vision is of the future. You want to know how the banker manages his/her client relationships, how the bank would deal with a farm like yours, and how everyone would expect to work together should you take your relationship “to the next level.” On a first date, no one expects perfection. Each person on a first date easily overlooks the little nuances that may, or may not, become an issue later on. No one needs to be perfect on a first date with a banker.

 2. Be Aware of Where You Are At, Where You Have Been, and Where You Are Going

The greatest risk to derailing any chance of a second date is for you, as the borrower, to not have an adequate grasp on the effects to your business from past issues & business decisions. Bankers appreciate accountability when it comes to “what happened” in the past. Own your choices, both the good one and bad ones. Describe what you are doing to rectify your poor decisions from the past and what you are doing to ensure those same choices aren’t repeated. Have an idea (at least) of a vision for what you want your business to look like in 5 years, recognize what it will take to get there, and understand what you need to do in the near term to take positive steps towards that vision.

 3. A “Partnership” Mindset

While taking your relationship with your banker to the next level has been described by some as a “marriage, I agree in figurative terms only. Your relationship with your lender is a partnership, however, and proactive & productive efforts must be initiated by both parties.
While I believe that your banker relationship is akin to marriage figuratively, I do believe that it is a partnership literally. In almost every presentation I’ve made through the winter and spring, I have described the partnership as follows:

“If you have a Debt to Net Worth figure of 1:1, that means your debts are level with your net worth. At that point your creditors have equal skin in the game as yo do; your lender’s ‘investment’ in your business is par with yours. You have a 50/50 partner.”

There are many farms with Debt to Net Worth figures that are 1:1 or higher. Where do you stack up? Do you have a “partner” by the definition of equal investment in your farm? It is only decent and respectful for both parties to behave in the relationship like a partnership.

Direct Questions

What is your mindset with it comes to your relationship with your lender? Is it friend or foe? Necessary evil or business partner?

How prepared are you, as the CEO of your company, to discuss your current situation and share your vision of your farm?

Are you excited for a dance or two on a first date, or are you expecting your date to be on bended knee by the end of the interaction?

From The Home Quarter

This is penned in large from the message that my old boss from my banking days used to lean on: early interactions between bankers and borrowers are like courtships; everyone spends time getting to know the other(s) and jostling for position to make the best impression. It takes time to build a trusting relationship, and like any first date, if either party pushes too hard too soon for too much, a second date is unlikely.

grain terminal

Outlook for Cash

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The biggest issue that I am working on with clients right now is cash. Cash continues to be tight at the farm gate, and our ability to predict cash flow is, as it always is, difficult. Even when we can contract grain sales with an adequate price and delivery date, the likelihood of actually being able to deliver as per the contracted date is often low. The challenges of managing debt and payables under those type of situations can be debated for days. We won’t berate it now.

As we look back over the last few years, we can identify what led to the current cash shortages. There is no point chiding anyone for those past decisions. What is in the past cannot be changed; we must acknowledge it and learn from it. After all, if we don’t learn from history, we’re doomed to repeat it.

Here are 3 strategies for managing cash as developed from my years in commercial lending and working with farmers on financial management:

Be conservative with projecting cash inflow.

Cash outflow has been allowed to increase lock step with, and sometimes outpacing, increases in cash inflow. This despite everyone knowing that farm cash inflow can be as unpredictable as the weather. Now we see many operations that are facing cash inflows like 2008 on required cash outflows of 2016. Calling the situation “tight” is at times an understatement.

Consider your lowest profit year in the last 10 years, and use your cash inflow from that year to compare it against your required cash outflow for 2016. How does that make you feel?

Protect working capital.

Recently, I tweeted, “Asset rich and cash poor will not suffice through this next cycle.” Many farms have squandered their opportunity to fill their working capital war chest because of large assets acquisitions and taking on significantly more debt for those acquisitions. Now, many of those same farms are borrowing every penny needed to operate the farm through a growing season. Working capital will be the greatest source of opportunity in the coming years. Access to adequate working capital could be the most limiting factor.

I read a piece recently that interviewed Dr. David Kohl (who I’ve quoted in the past.) Dr. Kohl says that his belief is the 60:30:10 profit plan. Of your farm’s profits, he says that 60% should go to growing the farm and making it more efficient, 10% to dividends, and 30% to working capital. Considering the general lack of working capital on currently on the farms, I suggest that the rule, in the short term anyway, be more like 80/20 with 80% of profits going towards building working capital and 20% going towards growth and efficiency; dividends might just have to wait.

Actually create and maintain a running cash flow statement.

Going through the exercise of constructing a monthly cash flow statement is often an “A-Ha” moment. Being able to clearly identify where and when your cash is flowing helps you understand how and when to best use operating credit, plan grain sales, or structure payment dates. While it is not new news anymore, it is worth repeating: set your payment dates for when you’ll actually have cash!

This is also a beneficial step to improving the relationship you have with your lender. When you can look your lender in the eye and tell them exactly how much operating credit you need, when you’ll need it most, and when you’ll pay it back shows that your focus on management is meeting their expectations.

Direct Questions

What changes would you make to your 2016 plans if you knew your cash inflow would be similar to your worst year in the last 10?

How have you invested your profits? How will you invest future profits?

What does your 2016 monthly cash flow projection look like?

From the Home Quarter

The outlook for cash will reach critical importance in the near future. Working capital will be the fuel for your growth in the coming years. Equity is the backstop. Equity does not pay bills, cash does. When cash is gone and unlikely to return, tapping into equity can replenish working capital, thus the “backstop.” The chase for equity over the last several decades in an effort to be “asset rich and cash poor,” like it was a badge of honor or something, has created a generation of farmers who would prefer to be rid of debt to the detriment of working capital.  It might be possible to finance growth and expansion without cash, but it is not possible to operate it.

AITC

Shock and Awe During Ag In The Classroom

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It’s something I should have done long ago, but finally took the step and volunteered for Ag in the Classroom. Considering the rapid disconnect that non-farming people have from their farming roots, which is typically as many as 2 or 3 generations now past, we as passionate AGvocates must do our share (and more) to help bridge the gap, both the knowledge and culture gap, so that we all can achieve a greater understanding of each other.

My experience took me to 2 classrooms: Mrs Ewart-Molesky’s grade3/4 class at Grant Road School in Regina, and Mrs McMurtry’s grade 3 class at Jack Mackenzie School also in Regina. I was not surprised to learn that none of these children lived on a farm; the closest any of them came was one child in each class whose grandparents still farm.  What did surprise me was how many of these youngsters had never been to a farm. That reinforced my perception of just how far removed these young people are from agriculture.

Part of the program was for me to read the children an ag based story. The book that was provided to me by the Ag in the Classroom program was titled What’s Growing Around Us. The story journeyed through the experience of a school aged girl whose mother took her to several different locations to learn about where food really comes from as part of her own school homework. The children listening to me read this story were fascinated by how many products from their daily lives, products beyond food, are derived or partly derived from agriculture.

I took the liberty to give these children some perspective on just how much Canadian farmers can produce. I used real life examples of how big a field can be, how big an acre is, and just how much can be produced on that acre in terms that these children could understand. The “shock and awe” from these students at the number of loaves of bread that can be produced from one acre of wheat was quite entertaining.

I closed my presentation to these students by taking some more liberty. I found some pictures online that I used to clearly illustrate what a farm is today versus what is a stereotypical view of a farm. The faded red barn, open tractor,  handful of cattle, and a farmer in overalls is what the stereotype is, and as I expected, it is what the children gravitated to. The pictures I shared with these students of modern grain farms and equipment brought more “shock and awe.” Some of what I shared with them that day included an aerial view of a modern farm yard, complete with a grain leg, several large shops, and a large modern home; the inside of a tractor cab with all the monitors and controllers needed during seeding; and a drone (which was the REAL wow factor.) I explained that while they see the drone as a super-cool toy, farmers use the drone as a highly efficient tool for checking crops, livestock, etc.

I left no doubt in their minds that farming is very technologically advanced, probably more so than their homes, entertainment systems, and video game consoles combined. I felt it was incredibly important to stress that the perceptions of what is a farm have changed, and will continue to change.

Direct Questions

With farming practices and food production garnering more attention and press than ever before, what are you doing to share the positive message about agriculture?

How are you managing your operational practices against the message that we deliver to non-farming people to ensure that what we say and what we do are consistent?

What are you doing to be an agriculture advocate (or as we prefer to say, “agvocate?”)

From the Home Quarter

While I thoroughly enjoyed my time volunteering for Ag In The Classroom, it came and went very quickly. I will certainly make myself available to visit more schools and educate more children in the future. It was a very rewarding experience.

What I would like to do at some point is speak to a class of high-schoolers, young minds that are forming their own opinions on issues of the day whether influence comes from the media, at home, or their teachers, in an effort to challenge them on any misconceptions about agriculture. The Grade 3’s were hanging on every word I said, and soaked up the message like a sponge. The older kids will hopefully want to “get into it” a little bit where we could ideally have an open and respectful dialogue.

Can you tell I enjoy a good argument?

ic_leap

Experience: LEAP – – Leadership, Engagement, Authenticity, Passion

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Leap year only comes around every 4 years, so to some people, it’s kind of a big deal; to others, not so much. I will have spent the 2016 leap day by taking part in a unique event, Experience: LEAP.

Experience: LEAP is an initiative of the wonderful people behind Project: SHINE Inc. Their passion is for everyone to live the fullest life possible, to be their true self, and to experience life with passion and purpose. The key message is for everyone to learn that where you are is not where you have to stay. The message applies to us personally, but also has business implications.

In the case of this event, LEAP is an acronym as follows:

Leadership

Leaders are made, they are not born. While some people are born with the characteristics that are often found in great leaders, the fact is leadership skills are learned, and therefore, leaders are made. This has 2 different aspects that apply to your farm:

  1. You are the current leader of your operation.
  2. You need to identify and develop a leader to take your place for when you’re no longer leading the business.

We often learn from experience, or learn from others’ examples, but rarely do farm business owners ever get sat down and taught how to be an effective leader. Everyone in your business will perform in direct correlation to their response to the leadership of the organization. It is like the old saying, “Would you rather be in an army of lions led into battle by a sheep, or be in an army of sheep led into battle by a lion?” If you find yourself questioning the effectiveness of your employee(s), first gauge your effectiveness as a leader.

As a leader, you need clarity in the results you expect in your business, the strategy for achieving those results, and the tactics in execution of the plan. Naturally, sharing this information with your team is critically important in effective leadership.

Engagement

One cannot expect to build a profitable business or an effective team without being engaged. A person who is disconnected and unattached will achieve sub-par results, and find the same in their team. How does one become more engaged? What can be done to increase the engagement of a team? By and large, it begins with purpose. Clarifying the “why,” which means “why are we here; why do we do what we do; why are we the best people for the job?” Clarifying purpose by answering the “why” helps teams, and individuals, recognize that they are a part of something bigger and that they have a key role to play in the organization. By turning a basic employee, a laborer per se, into an engaged and contributing member of a highly functioning team will pay dividends to your business that may astound you.

Authenticity

To be authentic is to be real or genuine. This involves interactions with your staff, your business partners, your family, your vendors, but most importantly with yourself.
I find it curious that authenticity is required for true engagement, which is required for effective leadership. Passion affects everything.

Passion

Passion can be difficult to describe because it is a feeling like few others. Passion can consume you, drive you to heights never imagined, and lead to immeasurable levels of joy or even anxiety. Passion can often create infallible commitment, which, if not balanced with sound rationale in decision making has potential to lead to undesirable outcomes. Unbridled passion sounds poetic and profound, but it can be dangerous if not balanced with reason and objectivity.
Yet, life (or business) with no passion becomes an insufferable task to endure. Most farmers I meet are passionate about their farm, about the land, about growing things, about the family legacy they are living and plan to leave behind. “Life becomes work” if there is no passion. But don’t forget balance, because “work can become life” on the opposite end of that spectrum; neither is desirable.

Direct Questions

How are you gauging the effectiveness of your leadership? (HINT: this isn’t a “self-assessment.”)

What are you doing to match your engagement to that of which you expect from your team?

How would you describe your passion?

From the Home Quarter

Recently, I listened to a presentation where the crowd was polled: If you could sell all your land for 25% above market value today, and rent it back for life at half of current rental rates, how many would take that deal? No one raised their hand. The presenter then acknowledged that no one in the crowd was a farmer, but actually a land owner. Everyone laughed in subtle agreement.
The point is to define your passion, your “Why.” Clarity in what you do, why you do it, and how you do it is no longer something that only applies to large corporations who need that “feel-good mumbo-jumbo” as part of their strategy. Make no mistake, farms of the future will require processes that were once foreign, or only found in corporate cultures. The need for social license becomes greater each day. The need for strong and committed teams becomes greater each year. The need for passionate, authentic, engaged leadership becomes greater with each new generation in the family business.

Financial data

Compiling Your Financial Information

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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.

 

ag excellence

Musings from the Ag Excellence Conference

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Last week, I attended the Ag Excellence Conference. Facilitated by Farm Management Canada, this year’s edition was held in Regina. Touching into 3 days of information sessions, speakers, and networking opportunities, I was impressed by the quality of content and the discussions that arose.  The following are some of the major questions and statements of which I took note during the conference:

  1. Will continued population growth in developing countries be enough to sustain the price and demand levels we’ve currently enjoyed?
  2. Why do we try to hire the cheapest labor available but expect it to meet high expectations?
  3. Are farmers losing their “social license” to farm?
  4. Why is there such a low priority put on advancing business management among farms?
  5. Just how far can automation advance production agriculture over the next generation?
  6. Are our water ecosystems at risk?
  7. How will Saskatchewan land values be affected with new ownership rules taking effect?
  8. Are you entrepreneurial or intrepreneurial, and can you be both?
  9. Physical (crop) yield does not equal financial yield.
  10. Strategy is nothing more than a dream without a tactical plan.

From the Home Quarter

Unlike most agriculture industry events which focus almost entirely on production, the Ag Excellence Conference focused on business management. Attendees recognize the need to elevate management awareness and skills to help ensure the future viability and sustainability of farm businesses.
The questions and statements above were asked/stated explicitly, or simply implied during conversations. These points stemmed from various regions of Canada, and various sectors of agriculture (from grains to cattle, to vegetables, to dairy, poultry, and egg.) Everyone in agriculture is asking the same questions, and raising the same concerns.
Give consideration to each of points above. Do you have a thought or response to any or all? We hope to tackle these and other issues in the coming weeks of Growing Farm Profits Weekly™.

doit

Soil Testing

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It’s soil sampling season. Hundreds of thousands of fields are yielding to the soil probe as farmers,
agrologists, and retailers are pulling cores as fast as they can before freeze up. The soil test is a crucial
decision making tool in planning the next year’s crop. Understanding each field’s organic matter,
residual nutrient levels, and pH levels are but a few of many factors that all come together in a soil test
report to allow you to make an informed decision on what it will take to produce a crop that meets your
expectations. Soil experts suggest that every field be soil tested every year. They surmise that each field
should be treated as unique and that using a whole-farm, or even crop specific, fertility management
strategy is not financially efficient. To paraphrase, how can one make decisions about fertility without
knowing what is currently available in the soil?

Despite some arguments that the unused nutrient can remain in the soil for future crops
(notwithstanding the varying disagreements over nitrogen losses,) over-fertilizing will use up working
capital in the current year. Under-fertilizing can limit your yield potential. Both are manageable risks.
So the question begs, “Why don’t all farms soil test all fields every year?”

“Labor” is part of the answer, so is “time.” If “cost” forms part of the reply, I have to seriously consider
mindset. What is the cost of a soil test on one field when measured against the risk of over, or under,
fertilizing? (Not to mention the value in being able to validate changes in your soil over the years.)
I would connect the same mindset to understanding a farm’s financial position before making business
decisions. Many farmers still do not make knowledge of their financial situation enough of a priority and
continue to make substantial business decisions based on emotion, or gut feeling. Pulling together your
net worth, income/expense, and cash flow statements provide you the same informed principles when
making financial business decisions as does the soil test when making crop and fertility decisions.
Understanding your farm’s financial position is crucial to making business decisions. Identifying how
your profitability, your equity, and your cash flow will be affected allows you to make informed choices.
These effects, once appreciated, can be measured against your business and personal goals to allow for
prudent and strategic business resolutions.

This leads directly into the heated debate over Big Data or Ag Data or whatever buzz word you prefer to
use. Without stepping onto that stage, the basis of the argument is the same:

  • Knowledge is power.
  • Uninformed decisions increase risk.
  • You can’t manage what you don’t measure.

While managing ALL you farm data is critical to the future of your success in the industry, I’m not
insisting that getting on the data train be 100% completed by everyone this winter. Like with anything
new, there are innovators & early adopters, and there are laggards, but the majority of us are
somewhere in between. Get over the mindset that the soil test is an excuse for retailers to sell you more
inputs; get over the mindset that “big data” will one day . This is about your business and how you can make
the most informed decision possible. Remember, you can only make informed decisions with quality
information.

Direct Questions

Would you write a cheque without knowing your bank balance? Would you accept regular information
from your bank that was “close,” or do you demand accurate reports each month?

Your soil test creates your “soil balance sheet.” Are you investing adequate time and effort into your
“financial balance sheet?”

The appropriate time for soil testing is after harvest but before seeding; once per year. How often are
you measuring your financial status? (HINT: it should be much more than once per year.)

From the Home Quarter

The parallels that can be made between doing a soil test and doing a financial review are many. While
there are subtle differences as well, the analogy is somewhat uncanny. Mindset comes up in this
discussion, as does data. In the end, it’s up to each business owner to decide how he/she will make
management decisions: with quality information leading to knowledgeable decisions, or by intuition
relying on emotion and gut-feeling. They’re almost as different as “black and white.”

Our Farm Financial Analysis service is akin to a report card, or a soil test report, of you farm financial
status. You get a clear and direct summary of strengths and weaknesses. It will also act as an indication
of the quality of your information (two benefits in one!) Post-harvest is probably the best time for a
Farm Financial Analysis so that you’re afforded opportunity to make changes (if necessary) before your
fiscal year end. Call or email for details.

GFP FI 2

Managed Risk – Part 5: Inaction

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While there could be many more “parts” to the list of topics that would fall under “Managed Risk,” I’ll
end it this week with one that I believe many people, maybe all people, face each day.
The list of reasons (excuses) we provide to support our decision not to act is virtually endless. They can
be found in the 7 Deadly Sins (pride, envy, sloth) or in almost any self-help book (communication issues,
inequality, stress) or even from psychological therapy (apathy, self-esteem issues, narcissism.)
Here are a few of the most monumental farm issues that are affected by inaction:

Business Structure

I recently took a call from a young man looking for guidance on how to manage the complexity of his
current farm arrangement. He farms with his dad and his brother; all three men have their own
corporation and their own land; one brother farms full time with the dad, the other is part time with offfarm
work. Tracking financial contributions and division of labor are a nightmare, and yet both look like
a cakewalk compared to managing “whose inventory is whose?” They are not happy with the increased
efforts needed to deal with these issues, they all know that there is likely a better way, but no one has
taken a step until the day I spoke with one of the brothers.

In this case, the inaction stems from unawareness: none of the men involved in this family farm had the
knowledge of what, if any, options were available, what questions to ask, or who to even ask for help.
It’s also common for inaction to stem from fear – fear of appearing incompetent by asking a “dumb
question,” fear of making the wrong decision, fear of rocking the boat and hurting the family dynamic.

Family Issues

Family issues challenge most intergenerational farms. There are many varieties, and most are worthy of
a book being written on the topic. Elaine Froese wrote Farming’s In-Law Factor. There should be books
written on “How to Fire Your Father” and “Decoding Motivation: How to Translate Boomers, Gen X’ers,
and Millennials.” If only…

The most common reason for inaction on family issues is “I don’t want to blow up the farm.” The
problem is that inaction can blow up the farm with greater odds than if action was taken! Unless the
family member you’re dealing with has truly sinister motivations, the likelihood of a successful dialogue
is quite positive. No one wants to destroy the farm or the family, so with the appropriate approach,
success can be had. The inaction for family issues predominantly stems from fear. Coaching is available
to help families deal with these types of issues.

Transition

Considering the average age of a Canadian prairie farmer today, the volume of farm transitions to take
place over the next 10 years is staggering. The cumulative value of assets that will change ownership
would dwarf the GDP of some small nations. With so much at stake, why does every farm not have a
succession plan already in place (or at least in progress?)
Inaction on this front increases the risk of the following:

  • Future family fighting
  • Colossal tax obligations
  • Destroy the farm business
  • Your legacy lost

Excuses (reasons) for inaction here are unacceptable. It is nothing short of reckless and irresponsible to
leave undone a function with such enormous impact. There is no shame in not having all the answers, or
any answers for that matter. Farm transition is a process, not a result. The process becomes a path of
discovery, but if you insist on keeping your blinders on, don’t be surprised to one day deal with any or all
of the 4 bullet points above.

Direct Questions

What is your main reason for inaction? “No Time” is an excuse. “Fear” is a real reason, but only you can
conquer it.

What have your accountant and lawyer provided you for advice regarding your future transfer (sale) of
assets?

In a family business, inaction increases the probability of irreparable family dysfunction. What is getting
higher priority: family harmony or fear of perceived conflict?

From the Home Quarter

What must happen to make an issue a priority? Is it an immediate tangible loss/damage, like an
equipment breakdown in season? Is it emotional goal, like a new pickup truck? Is it perceived (assumed)
risk, like assuming your employee will quit unless he’s granted a wage increase?

Making an issue a priority is the best way to beat the risk of inaction. The fear of the perceived
outcomes or the fear of not knowing how to proceed gives us permission to keep urgent issues down
low on the priority list. But at what point does reality and rational reasoning take over so that we
recognize that the risk of inaction has more negative potential than that of any perceived outcome?
In retrospect, “inaction” is not so much a managed risk, but an unmanaged risk. Managing our
“inaction” actually reduces, or even eliminates, the risk.

If you struggle with inaction…
For a no charge consultation on where you are best to replace “fear” with “priority,” please call or email
me anytime.

trees

Knowing Your Costs – Part 3: “The Present vs The Future”

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As a proud member of the Rider Nation, and loyal fan of the entire CFL (despite the goofy new rules for
2015,) I witnessed something happen on the weekend that blew up social media and has fans of the
Green & White frothing.

The struggling winless Riders have been devastated by injury and lack-luster performances on field,
especially defensively. The order of the game plan each week seems to be “who can we plug where?”
One of the criticisms from fans is that there has been inadequate planning on behalf of management to
bring in the right new talent to provide appropriate solutions at time of crisis (like injury.)

While the business of football is a mystery to me, the business of business is not. Like a football team,
your business will face crises and you’ll need to adjust quickly. It doesn’t have to be personnel related
(like a football team;) it could be asset related (like equipment catastrophe) or market related (like a
major price decline) or anything. The knee-jerk reactions that are commonplace during times of crisis
rarely bode well for outcomes.

In the case of my favorite football team, the knee jerk reactions have been to sign different players to
the roster regularly. This is meant to fill the gaps left by injury, unsatisfactory performance, etc. This
knee-jerk reaction creates an air of constant uncertainty among the remaining players, and rarely brings
instant results because new players need time to learn the system, and gel with their teammates so as
to function as a unit when on the field. Wouldn’t it be better to have developed some younger players
and keep them on a practice roster? Players who would have learned the system since training camp,
and who are just itching to get on the field and show their stuff?

Similar to your business when you face crises, you could follow the lead of this football team and simply
run to the marketplace to buy another combine, rent more land, hire more people, apply more spray,
etc. The knee-jerk reaction would feel good in the short term because of the band-aid effect, but what
about the future? How has the knee-jerk decision affected your future profitability? Will the lease or
finance cost of that combine be affordable for the next 2-5 years? Will the extra land grow anything, or
will it be flooded out or ravaged with disease? Will your new hire fit in with your existing team and
culture? Will that extra spray increase or decrease your profit? Wouldn’t it be better to have given these
potential crises some consideration before the season started with some planning? With planning, you
would be prepared and then make a timely and informed decision. No more knee-jerk reactions.

The biggest issue with my favorite football team came to light during the last game this past Sunday. The
head coach pulled a young quarterback from the game after he threw an interception. The young QB,
who is 23 years old and fresh out of college, started the season as 3rd in line yet found himself in the #1
slot for the last number of games because of injury. By all accounts, this young man has the skills to be
the future leader of this team…in several years, not now. He needs time to learn, to enhance his skills
and his knowledge. The best way to enhance those skills is with real life experience. On Sunday, the
head coach regressed that young man’s growth by killing his confidence when he got benched for one
mistake. The coach made a knee-jerk decision that can, and likely will, have a detrimental effect on the
future of the team.

While the future of this football team weighs heavy on the fans enthusiasm right now, your business
doesn’t have to be this way. Whether it be a crisis in personnel, equipment, weather, or markets, the
preparation and planning you put in ahead of time will save you time, anxiety, and money.
How does this relate to knowing your costs? It comes from planning. Knowing your critical crisis cost
points from investing time and effort in your management will clearly indicate where you have
sensitivities and where you have breathing room. The sensitive areas, where your return on investment
is tight, require more strategy analysis to better prepare for crisis.

Critical Crisis Cost Points

Personnel

o Key person quits mid-season (do you have a successor on the team today?)
o Injury, serious or minor (do you have a documented safety plan, insurance coverage?)

Equipment

o Does your current equipment cost per acre have room for an increase should there be
an equipment crisis?
o Is your current equipment line deficient or excessive based on your productivity,
efficiency, and cost expectations?

Weather

o Are you prepared for hail or frost, drought or flood? (i.e. do you have sufficient working
capital to handle the loss of gross margin?)

Markets

o Do you know your Unit Cost of Production so you can hedge for a profit?

Direct Questions

What have you done to prepare for crisis on your farm? Will you be making a prepared and informed
decision or a knee-jerk reaction?

What are you doing to understand your costs on your critical cost points to accelerate your ability to
make informed decisions during times of crisis?

From the Home Quarter

The planning that goes into putting together a successful football season resembles the planning it takes
to put together a successful growing season on your farm. You put together the best game plan you can
based on the assets at your disposal, tangible or intangible. You prepare for quandary by building depth
into your game plan for your critical crisis cost points. Sometimes you best plans aren’t enough;
sometimes the dilemma is greater than you could predict or the results are more damaging than you
could imagine. No matter how you slice it, your best bet is planning and being prepared by drawing the
distinction between risking your future on a quick decision in the present, or taking the charted path
keeping the long term success of your business always in mind.

The head coach of the Riders got fired before I could finish writing this article. I expect it was partly
because he refused to take any accountability for the team’s struggles. He routinely made decisions in
the present with a lack of regard for his, or his team’s, future. He arrogantly stated in interviews that
he’s a great coach and will find work if he’s let go. His unwillingness to look within himself as the leader
ultimately cost him his job. As the leader of your farm, please don’t get caught in that same syndrome.
Your future depends on it.