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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.

horizon2

Austerity

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We’ve been hearing the word “austerity” in the media for quite a while now. Whether it be issues in the
EU, or right here in Canada (Quebec), it’s become a “buzz-word” as of late.

Merriam-Webster defines austerity as “a simple and plain quality; a situation in which there is not much
money and it is spent only on things that are necessary; austerities: things that are done to live in a
simple and plain way.” http://www.merriam-webster.com/dictionary/austerity

Based on that definition, I like what that word represents. Maybe that’s because I grew up on a small
mixed farm in Saskatchewan in the 80’s. There wasn’t a lot to be had that wasn’t “necessary.” Don’t get
me wrong, we never went without the necessities, but I wore $20 running shoes from Army & Navy, not
Nike Air. I guess I was raised under austerity.

There was an article published in Country Guide this spring titled “Have Higher Farm Incomes Changed
the Way You Think?” It opens by describing the near perfect correlation of rising farm income to rising
new farm equipment sales. The fourth paragraph reads; “So the question is, do those periods of high
incomes create a kind of euphoria or recklessness that induces farm managers to make longterm financial decisions that could seriously reduce profits in future years, especially if revenues
fall?”

I think we know the answer to that question. And, so what now?

Well, who is considering an austerity plan for their farm?

Remember, austerity is spending only on things that are necessary. It’s easy for us a humans to blur the
lines between “nice to have” and “need to have” because we allow emotion to interfere with our
decision making.

Needs

  1. Bushels.
    You need to maximize yield in the most efficient way possible to produce at the lowest Unit Cost
    of Production your farm can provide. An Agrologist can help and should prove his/her value
    every year.
  2. Cash Flow.
    You need positive cash flow to meet debt and lease obligations, pay for inputs, land rent, wages,
    etc, etc, etc. Grain marketing is often where the best gains can be had, or can be lost. Diligent
    marketing with quality information (or lack thereof) can make or break any farm.
  3. Above Average Management.
    As you read in Growing Farm Profits Weekly Issue #17, average management was sufficient in
    the boom years, but it won’t get you through the next business cycle. Even above average
    managers find confidence in having a business advisor offer independent, unbiased advice on
    current situations, strategic plans, and risk management.

The list of “nice to have” could fill more pages that you’d care to read, or than I’d care to write. The list
of NEEDS is not exhaustive either, but in the spirit of austerity, those are the big 3 that NEED focus
(pardon the pun.)

Direct Questions

Production alone will not keep every farm afloat through the next business cycle. Are you able to
elevate your management abilities (no matter what level you’re currently at) to offer your farm its best
chance to thrive (or at least survive?)

Somebody shared a quote on Twitter that I read today: “Successful people are like a turtle on a fence
post. They didn’t get there by themselves.” -Michael Pinball Clemons
Do you have an arsenal of trusted advisors working for you to ensure you do everything it takes to be
successful?

Will your austerity plan be cutting the right costs or just the easy ones?

From the Home Quarter

It’s been said “You can’t shrink your way to greatness.” When it comes to cost cutting in an effort to
preserve cash, there is a wrong way to do it. Similar to the thinking of “good debt and bad debt,” there
are costs that should be cut, and costs that must not be cut. Interestingly enough, my phone has been
ringing lately with the voice on the other end saying, “Things are looking tough, I can’t afford to make
any mistakes. I need your help now more than ever.”
That’s what I’m here for, glad you called.

If you want help with building an austerity plan or just guidance on daily strategic decisions, call me or send an email.

farm2

Prevention or Contingency?

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I read Alan Weiss regularly and one of his daily blog entries from early July gave me inspiration for this
week’s article.

Alan consults to Fortune 500 Companies and solo practitioners alike, and in the entry I refer to he asks
readers, “What are you doing with your clients, helping them to fight fires or to prevent them?”
Currently, I’m doing as much fire-fighting as I am fire prevention. I enjoy the latter far more, and I know
clients do to.

The challenge is that it is hard work to build and implement a prevention plan. It’s more fun to “give’r
while the going’s good” and figure out the rest later. For many farms, later has arrived and now it’s time
to fight fire.

The prevention plan will consider 3 metrics that must be maintained:

1. Working Capital
2. Debt to Equity
3. Cash Flow

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Working Capital is simply the difference between your Current Assets and your Current Liabilities. To
complicate things, there is a process on how to include accurate figures for each; it’s not hard, but it
takes work. If your working capital is negative with little opportunity to return to positive, seek help
immediately.

Debt to Equity, usually represented as Debt:Equity or D:E, is a ratio of your total liabilities to your
equity. For realistic measurements, calculate your net worth for the equity figure. Net worth is fair
market value (FMV) of all “owned” assets less all liabilities. The difference is your net worth. If your
debts are $2million and your net worth is $1million, your D:E = 2:1. In some industries, a D:E of 2:1 is
acceptable; in agriculture, it is considered too high. Target your D:E at 1:1 or less.

Cash Flow is going to be the new-old buzz word. As it was the dominant focus of the 1990’s and early
2000’s, cash flow will once again be front and center. Total up you cash flow requirements for the year
and don’t leave anything out (like living expenses.) When compared to what expected gross production
revenues are going to be this year, are you happy with the result?

Direct Questions

Can you recognize and describe the importance of adequate working capital?

Debt to Equity is a measurement of “what you owe versus what you own.” Are you happy with how your
metric balances out?

Cash makes loan payments, equity does not. Are your financing obligations using up the cash you need
to pay bills, cover living expenses, or build adequate working capital?

From the Home Quarter

Your prevention plan needs to have these three metrics measured, tested, and measured again.
Strategies for how to manage your finite resources so as to build and maintain a prevention plan are
easier than fighting fires or trying to put together an emergency contingency plan when you first see
smoke. You might have excellent fire-fighting skills, and your contingency plan could be water tight, but
the fire still occurred. Isn’t it better to prevent what caused the fire then to fight it?

If you’d like help building your farm’s prevention plan, then call me or send an email.

GFP FI 2

The Drought Dilemma

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The smoky haze we started inhaling yesterday drives home more than ever just how dry it really is.
#Drought15 is the Twitter hashtag to learn about how bad it is beyond our respective back doors. By all
accounts, crops are suffering and market prices are starting to reflect it. Those who are in an area that
has been, and/or remains, too wet just might be coyly denying that they ever complained about the
rain.

While it is too early to get a handle on any semblance of accurate yield estimates, people I’ve been
talking with have tossed around phrases such as “July harvest” on lentils, and described wheat crops
that are ready to push heads despite only being approximately 2 feet tall. What might be in those heads
if another hot dry windy week prevails?

As a farmer, you are an optimist. Even the most pessimistic ornery old codger you can imagine is still an
optimist if he’s a farmer. If he wasn’t, he’d never put a crop in the ground each spring. But as optimistic
as “Well, if we get one good rain in the next 4-5 days” sounds, it’s not going to make it rain. Despite the
drizzle we’re seeing today, one rain does not make a crop. If you’ve got payments to make, payables to
cover, even payroll to meet, you might want to start thinking about how that will all get done if
#Drought15 persists.

  1. Speak with your creditors.
    They’re not clueless; they hear the weather forecasts and read the crop reports. But they also
    won’t assume; they won’t assume that you’ll have trouble making payments because your crop
    is not going to meet expectations. As far as they’re concerned, you’ll be fully capable of
    satisfying the obligations you promised to make when you signed the loan or lease
    documents…unless they hear otherwise.
    And remember, your lenders are not problem fixers, so coming to them after the trouble gets
    real makes it far more difficult. They have more opportunity to help when they can be proactive.
  2. Consider your options.
    Do you remember Growing Farm Profits Weekly Issue #9? “Life and business can often be like
    snowmobiling: when trouble is ahead sometimes you need to pull back and sometimes you
    need to stay on the throttle.” What is your best option considering your crop’s development to
    date? I recently read an article discussing the possibility of reseeding barley on fields that have
    been froze out or droughted out. Considering the dire need for feed this year, cattlemen will be
    interested in green feed or silage barley. Is it time to consider how that might pencil out?
  3. Change your plans.
    The decisions you made last year and the year before were based on the best information you
    had at the time. The current situation differs greatly and probably requires a new decision.
    Swallowing pride and allowing yourself to change/reverse/discard old decisions could be exactly
    what your business needs. Nay, it IS what your business needs because your business is
    constantly changing and so should your decisions. Knowing when to do so is just as important.

Direct Questions

How would you rate yourself as far as being agile to your financial obligations in light of poor crop
conditions?

How would your stress level decrease if you took 10% of the time and effort you spend on worrying
about the existing crop conditions and used it to contact your strategic partners and advisors to amend
2015 expectations?

Are you staunchly sticking to your past decisions or are you being flexible and responsive to the needs of
your business?

From the Home Quarter

About 17 or 18 months ago, I blogged about how we need to reset what our expectation of success
really is. After the record 2013 crop, the 2014 crop year was poised to be a real disappointment in
comparison. Considering so far this year we generally went from adequate or excessive moisture in
March to a drought by mid-May, I’d suggest we look at 2015 for what it is and be realistic about what
we can call success. To give you a glimpse of what I mean, in 2014 I was working with a farm that
projected an operating loss due to the excessive moisture, crop quality issues, dropping grain prices, and
high fixed costs. The comment during planning was “OK, so we’re expecting to lose only about $300,000
in 2014; that’s decent considering what it could be.” They reset their expectation of success based on
what they saw.

Take a good hard look at your current year, be realistic with expectations, and make changes as
required. We can help make sense of it, take the emotion out of it, and assist with establishing new
plans.

If you’d like help planning your farm for business and personal success, then call me or send an email.

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Emotional Decisions: Business’ Achilles Heel

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I bought a used truck last week. Since I am no longer actively farming, I decided that my beautiful ¾ ton
diesel was more truck than I needed. It took me 2 years of searching to find that truck, so some people
are astounded that I would be selling it. It was still a terrific truck, and had nothing wrong with it.

During my search for another truck, I learned bits of info here & there about the good, bad, and
otherwise regarding the models I was interested in. It’s always a challenge to sort through the noise of
those who are die-hard loyalists who cannot see anything adverse about their brand and of those who
are inherently negative and cannot find anything good to say. How does a person decide?

I wanted the replacement truck to be in the 2011-2013 range. I faced the same challenge we all face
when considering a major purchase: can I find what I want within my price range, do I accept less than
what I want to stay within my price range, or do I pay more than I planned to get what I want? In the
modern age of “instant gratification,” our society typically pays more than planned.

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While some options on my list were important, others weren’t. When considering the Ford F150, I was
firmly on the fence over engine options: 5.0L or EcoBoost? As mentioned earlier, there is a lot of noise
about these engine options. I found a consistent message between 2 salesmen and felt that was the
most honest feedback I have come across. When describing what I need out of this truck, and why I was
on the fence, one salesman replied, “Well you’re just taking the emotion right out of this decision, aren’t
you?”

Yes. Yes I am.

The fundamentals of what makes a good decision are often clouded by emotion. We get so caught up in
the “want” that we blow right past the “need.” And since we as a society will typically pay more than
planned to get what we want, it creates a perfect storm. This storm has eroded balance sheet equity for
many, and left others upside-down on vehicle & equipment loans, but always negatively impacts cash
flow.

Direct Questions

How often have you let emotion take over your decision making process?

Do you avoid making a business case for each decision because it will prove the emotional argument to
be the wrong one?

What impact are you feeling from past emotional decisions?

From the Home Quarter

Removing emotion from business decisions is a key benefit that my clients enjoy. It allows my clients to
experience greater confidence in their decisions by having me filter through their emotions. I am not on
your farm each day, so the emotion of why you’re making the decision is not felt by me, thus allowing
me to see through it and keep you on track.

The truck I sold was rare because of its features and options. It had incredibly low kilometers for its age,
and needed nothing (I’d been through it front to back over the last 2 years.) What I felt for this vehicle
was almost on the verge of love (although I have never “loved” or “named” any of my vehicles, ever.)
And while it held a special place with me, it’s a truck, a tool, an inanimate object and completely
replaceable. I sold it when I did because I knew I could get maximum value for it now. A year from now
would be significantly less. It was advertised on Friday afternoon, it was sold by Saturday, and picked up
Monday. I found the truck I wanted the Thursday before, and picked it up a week later. I took the
emotion out of the equation.

Allowing emotion to influence your decision making is like putting on blinders: all that can be seen is
what you “think” you need and no other options appear available. Let’s take the blinders off, remove
emotion from the equation, and see if we can make a business case that offers an appropriate ROI.

If you’d like help removing emotion from the decisions you make for business and personal success,
then call me or send an email.