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Managed Risk – Part 4: Liquidity

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We’ve all heard the saying “Cash is King.” In my opinion, “cash isn’t king, it’s the
ACE!” Whatever metaphor you prefer, the point is that cash levels and cash flow are both critically
important to your business. So, let’s get right to four points that affect your liquidity:

1. Your view of cash.
When I was still farming, I asked dad when he wanted to receive his rent payment, now (at the
time it was late November) or after January 1. He replied, “Well, I wouldn’t mind seeing a bump
in my bank account now, but I’ll wait until January for income tax purposes. Why?” When I
admitted that at that time we had no cash and would be dipping into our operating line of
credit, he said, “I thought you said your farm was profitable.” Our farm was profitable. He
couldn’t wrap his head around the fact that a profitable farm might not have cash always at the
ready, especially a small farm still in its youth. He equated profit with cash in the bank. After
arguing the point for 5 minutes, he just shook his head saying, “I guess that why I’m not farming
any more, I just can’t take that much risk.”

What he was getting at with his final comment was how we very quickly allocated our cash that
year. With harvest sales, we cleared up all accounts payable, pre-bought some fertilizer, and
paid down our supplier credit. The bins were still full, and with more grain sales scheduled for
the weeks and months ahead, our working capital was strong.

What is the difference between cash on hand and working capital? (HINT: if your answer is
“nothing,” then think again, a little deeper this time.)

2. Your use of cash.
Over the last few years, how many new pickup trucks were paid for out of working cash or put
on the operating line of credit? This is one example of a poor use of cash. A business that is flush
with cash can be a dangerous thing in the wrong hands, but don’t fret because the laundry list of
vendors all clamoring for your money will offer plenty of opportunity for you to part with it.
Do you justify some of these types of expenditures as part of a “tax plan?”

3. Your timing of cash.
One of the major challenges for manufacturing companies is the “cash conversion cycle.” This is
the time it takes to convert raw materials into cash. This cycle happens frequently in a
manufacturing firms operating period, often several times each month or quarter (depending on
what they are manufacturing.) Your challenge in the business of farming is that you only get one
cash conversion cycle per year. You invest in inputs early, manage through a long production
cycle, only getting one chance at producing the crop that will be sold for cash, and eventually
selling it sometimes as late as half way through your next production cycle. It is this long cash
conversion cycle that makes cash management vitally important on your farm.

How long is your farm’s cash conversion cycle? (HINT: it is measured in days.)

4. Managing your liquidity.
Working capital is a component of your liquidity. Measured as the difference between current
assets and current liabilities, your level of working capital is a direct indication of your business’
ability to fund its current operations. This, or course, is critically important to your lenders.
The desire to utilize easy credit and therefore finance everything from combine belts to
hydraulic oil may sound like a simple way to keep the wheels turning. If your farm is without
cash due to poor crops/pricing/etc. from the previous year, then available credit is a lifesaver to
help you keep operating. Just remember, such a scenario is a short term solution, and by no
means can it be considered a long term strategy. Sooner or later, your creditors will tire of
holding all the risk of funding your operations. Your working capital must be built and
maintained.

How much working capital is appropriate for your farm? (HINT: it’s probably more than you
think.)

Direct Questions

How do you view cash? Does it only have value when allocated (spent,) or is it an essential asset on the
balance sheet?

If you believe cash in the bank is an indication of profitability, can you not save your way to increased
profit?

How would you describe the financing cost to your business relative to the long cash conversion cycle
and the cost of credit?

From the Home Quarter

I had heard a seasoned old banker years ago say how “farmers don’t like to have money in the bank,
because as soon as it gets there, they spend it!” When there is cash in the bank, we feel profitable, and
often the decision is to allocate that cash to another asset. Will that other asset help repay liabilities?
For as long as I can recall, this industry has always dubbed itself “asset rich & cash poor;” the push
among players has been to build equity. And while the chase for equity is noble, equity does not pay the
bills, nor does it make loan payments, nor does it meet payroll. Cash does.

We must make cash management an utmost priority. If we are relying on financing for most/all of our
daily operations (operating credit,) what will happen if/when a lender does not renew those lines of
credit? Do you recall the ruckus out of the US each time they need to “raise the debt ceiling?”
Potentially, all government operations would get shut down. Same goes for your farm. If you have no
cash, and your credit lines get called, what are your options? I can tell you, they aren’t pretty.

It does not matter whether you believe “Cash is King,” or “Cash is the Ace.” If you have neither, you
might be forced to fold.

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Managed Risk Part 2 – Interest Rates

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In a conversation recently with a young farmer, who I feel is a poster boy for excellent business
management, he disclosed that he’s far more concerned with rising interest rates than low commodity
prices. During our brief exchange on this topic, I stuck with my position that interest rates, if they move
up at all, will see modest increases because when we consider the volume of credit currently
outstanding, the effect (desired or not) of any increases would be dramatically slower spending and
investment. Currently, I see no reason domestically to raise interest rates. His position involved a
number of macroeconomic factors including China, the US, and the EU. Admittedly, I’m less fluent in
how China’s recession will affect the Bank of Canada’s prime rate or how it will trickle down to Canadian
agriculture, specifically primary producers, but no doubt there is an impact to consider.

Just because the Bank of Canada may not be raising its prime rate does not mean that lenders won’t
raise theirs. The Bank of Canada prime and the chartered bank’s prime are related, but not directly
connected. The Bank of Canada makes its decisions on economic factors. Lenders make their decisions
based on business factors and their expectation of a profit. Lenders most likely recognize that increasing
rates now would be harmful, but again they have profit expectations and dividends to pay.

Is your business the same? Do you have a profit expectation and dividends to pay to shareholders?
It was encouraged in Growing Farm Profits Weekly #11 on March 17, 2015 for everyone to do an
interest rate sensitivity calculation. I would enjoy hearing from readers who did an interest rate
sensitivity to understand what they learned from the exercise. For those of you who didn’t do one, here
are some points to ponder:

  • Interest costs on term credits are controllable only at the time you sign documents, or at
    renewal.
  • History shows that over the long term, floating interest rates are cheaper than fixed rates.
  • While enjoying the consistency that fixed rates offer, consider the ramifications of renewing all
    your fixed rates at the same time. Having no control over, nor any idea of, what future interest
    rates will be, what is your strategy to manage this risk?
    HINT: it’s something you climb, but it isn’t a tree. Call or email if you want to explore further.
  • The interest rate you pay to your lender is a direct representation of 2 factors:
    • The cost incurred by the lender to acquire the funds being lent to you, and
    • Your lender’s view of how risky your particular business is. IE: you might pay more or less interest
      than your neighbor if the lender views your farm as being more or less risky than your neighbor’s farm.
      (This is the significance of knowing what’s important to your lender!)
  • Competition for business is the 3rd factor affecting your interest rate – and it goes both ways.

At the end of the day, your control is over how much you borrow, and for what purpose. Bad debt is
unhealthy enough, but interest on bad debt is worse. Your interest strategy needs a blend of fixed and
floating rates, varying terms, and payment dates that align with your cash flow.

Direct Questions

Consider the pros and cons for each of “blended payments” and “fixed principal plus interest
payments.” Which payment structure best fits your needs?

When doing an interest rate sensitivity test, do the results scare your socks off?

What is your strategy for managing loan interest?

From the Home Quarter

The great equalizer across all farms is Mother Nature. What isn’t equal is how each farm manages risk.
Those who are averse to any debt often miss out on growth opportunities. Those who have a flippant
approach to debt often find themselves painted into a corner. It is a strategic and measured approach to
managing risk that sets apart the players in the game.

grass

Information Management – Healthcare vs Your Farm

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Of all of the places one can imagine, our health care system is the preeminent entity that I believe
should be leaps and bounds ahead of everyone when it comes to managing data.

Over the last year or so, I’ve listened to my father-in-law’s observations about our healthcare system as
he led the charge relating to the changing needs of his disabled sister. He described how one nurse
would come into the hospital room, ask a series of questions, make some observations, take some
notes, and then leave. Shortly afterwards, another nurse would come into the hospital room, ask a
series of similar questions (getting similar answers,) make some observations, take some notes, and
then leave. At some point, a doctor would come into the hospital room, ask a series of similar questions
(and get similar answers,) make some observations, take some notes, and then leave. Usually these
notes where made on a chart that hung outside the hospital room door.

Some thoughts:

  • The cost incurred to have 3 highly paid and very intelligent individuals gathering similar
    information would likely astound me;
  • All of the information gatherers collected similar information, and compiled it into one paper-based record;
    Could anyone walking by a hospital room with malicious intent grab someone’s chart and leave
    that patient’s caregivers without access to critical information? Why isn’t this electronically
    secure yet (it’s only 2015 already!)
  • Patients get tired of answering the same question over and over;
  • Why wouldn’t the health regions equip each caregiver with a tablet computer that brings up a
    patient’s entire health history with the scan of a QR code that could be found on the patient’s
    wrist band?

Why am I writing about this? How is this important to you? First off, our healthcare should be of great
importance to everyone. But specifically as it relates to this blog, consider the
paragraph and bullet points above, but this time let the patient be your farm and the caregivers be your
business advisor, your lender, and your marketing advisor.

Direct Questions

How much better would it be to have all of your critical business information readily available for your
strategic partners to help you more effectively and efficiently manage your business?

How inefficient is it for each party to have to ask you for the same info? Your time is worth something
too, so wouldn’t you be better off not having to run through the same routine 3 times over?

How much risk is your business at if you were to lose, accidentally or maliciously, your historical business
information?

We’re a decade-and-a-half into the 21st century, and technology is awesome. When are we going to start
trusting it and using it to its full potential?

From the Home Quarter

I believe we have the best healthcare system in the western hemisphere, and I am by no means
criticizing any of our hard working health-care providers. But I do question the bureaucracy and
inefficiency that plagues the system (at least in the eyes of this layman.) I think we could do so much
better, which would then allow those on the front lines to spend more time providing healthcare rather
than administering information.

I believe that Western Canadian farmers are of the most efficient producers in the world, and I am by no
means criticizing any of your advancements and dedication to improving your production. But I do
question the lack of urgency and the failure to recognize the importance of having up to date critical
business information readily at your fingertips. You aren’t making the same type of “life and death”
decisions that are made daily by our health-care providers, but the decisions you make for your business
will effectively set in motion the cause and effect that can lead to life or death of your business.

Call to Action – Rate your current information management practices:

1. Can you produce your working capital figure within 2-3 minutes at your computer?

2. Can you advise what your total fertilizer cost per acre is by field? By crop?

3. Can you produce a current list of all farm assets with market values?

4. Do you keep a rolling list of cash requirements for the next 18 months? (i.e. loan payments,
property taxes, insurance premiums, etc.)

5. If you’re not willing to compile this critical information, are you willing (or can you) hire
someone to do it for you?

If you’ve answered YES to at least 4/5, congratulations, you’re ahead of the curve.
If you’ve answered YES to 3/5 or fewer, then please pick up the phone and ask for help.
(Hint: I always return voice mail messages.)

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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.

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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.

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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

graph15

 

 

 

 

 

 

 

 

 

 

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.

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.

farm

Accountant’s Work & Management Information

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In the last post, you read (again) about how important good accounting is to your business. If that wasn’t
enough, here’s more.

Do you ever find yourself tiring of all the financial hub-bub in the media? It seems like every 2 or 3
months the same banks, or automakers, or grocery chains are “reporting earnings.” Well, that’s because
they do. Every quarter, the publicly traded companies release an earnings report, financial statements
as it were, to the shareholders. The shareholders are the owners of the company, and they demand
information that is accurate and on time so they can make an informed decision about increasing their
investment, standing pat, or divesting. The company is in a constant state of flux, and owners want to
know by how much their risk profile has changed in the last 3 months. Accurate and timely information
is not only demanded by the shareholders, it is the law under securities regulations.

So why are farms OK to receive their info once per year, and often as late as 5-7 months past their year-end? If the answer is, “Because the owners (shareholders) aren’t demanding it,” then I have to ask,
“Why the ____ aren’t they?”

Does your lender put more emphasis on the timing and quality of your financial statements than you
do? If your answer is “Yes,” then please keep reading. Actually, print this off and read it weekly until
Christmas.

Quality accounting is more than just minimizing income tax and filing GST & Agri-Stability. Your
accountant should be tasked with generating precise and informative reports that give you, the owner, a
representation of the financial position of your business, and the changes year over year to your farm’s
overall financial health.

If the information in those reports is of little interest to you, or if you’re embarrassed to admit you don’t
understand what the contents really mean, please don’t fret. There are many people who are available
to help including your accountant, your lender, and your business advisor. All of them WANT to help, but
they won’t insult you by assuming you don’t know. For help, first you must ask.

As for all you wonderful accountants out there reading this, please note that I will be working with each
and every one of my clients to fully utilize the financial reports that you create. I will be helping each
farm CEO make informed decisions with help in part from your reports. That said we need reports that
are useful, readable, and easy to navigate. Combining several line items from client info into one line
item on the Review Engagement does not help management make informed decisions! For example, the
account we know as “repairs and maintenance” does not on its own distinguish between equipment
repairs or building repairs unless you break it down for us. When I work with clients to determine their
equipment cost per acre, we need to know just how much R&M is equipment and how much is
something else.

I encourage everyone to have a discussion with your accountant. It’s easy to just do what we do and not
take the time to talk about what we really want. Accountants need to know about your 3 year plan so
they can offer appropriate tax advice. They also need to know if the report they prepare for you is
meeting your expectations. Not everything is negotiable, but you don’t know unless you have the
conversation!

Direct Questions

How are you utilizing the financial reports that are prepared by your accountant?

Do you have questions when you’re exploring the contents, or do you even feel like you’re reading a
foreign language when reviewing your financial reports?

How do you make decisions about the future if you’re not taking the time to evaluate and understand
past performance?

Are you getting information to your accountant in a timely fashion?

From the Home Quarter

Management decisions, if they are to be informed decisions, need to be made with quality reporting and
realistic expectations; both are key components of a sound business plan. I recently witnessed a
financing deal go south because of the lack of quality information. The account manager aptly described
the financing request plan and supporting information as GIGO: garbage in, garbage out. Other factors
that are usually afforded consideration in a financing deal were never given a chance because the poor
quality information derailed the opportunity first.

It is up to you to work with your accountant, one of your key advisors, to put together the type and
quality of reporting that will not only serve you in making management decisions, but also support your
goals when seeking opportunities for growth.

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

value

Valued Advisors = Service of Value

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I cannot stress enough the importance of good accounting:

  • I cannot stress with enough occurrences (frequency.)
  • I cannot stress with enough emphasis (urgency.)
  • I cannot stress with enough significance (magnitude.)

You’ve read how I feel about good accounting: you get what you pay for, and if you want to go cheap you’ll get that kind of service.

In early 2015, one of my clients had decided to move their accounting to a quality accounting firm that is
strong in ag. Previously, they were using a service that, while providing a nice financial statement (more
than just a tax preparer,) offered little in the way of consult or advice. As we are trying to move the
financial reporting to the new firm, the old service provider has been unable to clarify a “due to/due
from shareholders” line item in the statements that will have significant bearing on future tax planning.
This solidified to my clients the reasons they were moving from this “low-cost” provider to a quality
accountant in a reputable firm.

As the new firm was reconciling 2014 for my clients, it was discovered that their previous accountant
had not submitted the GST reports correctly for a number of years. The impact will be tens-of-thousands
of dollars. What other information is now suspect to scrutiny? What other ramifications might there be?
In this case, there will likely be a GST audit because the old accountant’s lack of quality work will
BENEFIT my clients to a GST REFUND of an estimated $56,000!

Direct Questions

How much more money was potentially left off the table (i.e Agri-Stability) for these clients? They’ve
come off of a string of tough years due to excess moisture.

How valuable is it to invest a few thousand more each year with a quality accountant to ensure you’re
getting accurate reporting?

Do you ask questions of your accountant, or do you accept what they say without further inquiry? Have
you discussed with your accountant your long term business plans?

From the Home Quarter

It took about 2 seconds during a phone call on Friday between my clients and their new accountants for
my clients to see that the new accountants just paid for themselves. And while a GST audit will be
uncomfortable, the future comfort (and confidence) that the reporting will be on spec and on time is of
great value. We’re all eager to see what else this new firm can find.

If you, as a businessperson, don’t value the financial reporting that your accountant creates, then you
will likely see accounting as an expense that you are trying to minimize. Accounting is one of those
services where you get what you pay for, and going on the cheap can be costly, as my clients will testify.
If you cheap out because you don’t value accounting, I expect your business results would reflect it.

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

doit

Getting It Done

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Alan Weiss is my mentor’s mentor, so naturally I subscribe to Alan’s work. One of Alan’s recent
newsletters contained a short piece about The Human Condition: Procrastinating.

Let’s be honest, we’re all guilty of it at some point. Alan writes, “We procrastinate out of sloth (I don’t
want to get up); out of fear (what if it’s not good enough); out of lack of consequences (they won’t do
anything about it); out of ignorance (I didn’t know there was a financial penalty after that date). We all
do it, it’s not a matter of obliterating the habit, it’s a matter of priority.”

While all of the farmers I speak with (be they clients or not) have never procrastinated at getting
equipment ready for the field, many admit to procrastinating when it comes to management of their
business data, analyzing information, and pretty much anything to do with bookwork.

Is procrastination a matter of priority and not habit? No argument that doing books isn’t a lot of fun;
shuffling paper in an office (or at the kitchen table) isn’t a task that everyone is fighting to do. Yet it is
clear to all of us that there is significant, sometimes immeasurable benefit to keeping our business
information current and up to date.

I am very proud of one of my clients this week. He was facing a very uncomfortable situation that will
lead to further discomfort as time goes on. We had discussed an idea or two to possibly defer the
immediate pain, but in the end, he chose not to procrastinate. He faced this situation head on and took
what was coming his way. We’re working hard to deal with it even though seeding is ready to start on
his farm. He realizes that while getting the crop in the ground is highest priority, there is no benefit to
allowing this unpleasant situation to fall lower on the priority ranks. His approach to handling these
issues is an example for everyone.

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Direct Questions

Do you give yourself permission to let unpleasant tasks slide down the priority list?

Are you aware of the potential gains missed, or losses realized, from not giving financial matters greater
priority?

Are you allowing your conflicting priorities to pull you left when you need to go right?

From the Home Quarter

I make it my business to ensure you are keeping your financial management data up to date, current,
and usable in real time. Six-month old information is not valuable when making business decisions
today. Would you write a cheque today based on your November bank statement? I help farm
businesses realize the priority that needs to be placed on financial management practices and help them
understand the financial ramifications of improved or decreased efforts in doing this critical
management function. Alan Weiss writes, “I’ve never procrastinated about eating the lobster that I
ordered. We ought to treat our priorities in life the same way, as a great meal that can spoil if you just
let it sit.” Managing your farm’s information is certainly not akin to a lobster supper, but both will spoil if
you let them sit.

Keeping your information managed and up to date is a lot less painful that what my client faced this
week. He made it a priority when he didn’t have to. What’s your priority?

If you need help in prioritizing your financial management functions, determining your
True Cost of Production, identifying opportunities to reduce operating & overhead costs, or applying
analysis to your management data, then email or call me.