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barometer

Farm Business Barometer

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It’s harvest time. The weather has been uncooperative. The crop is generally not ready to go. Quality is diminishing. The August and September contracts Fred* had in place will not be delivered on time, even though the elevator has room, because his grain is still in the field and not in the bins. (* Fred isn’t anyone in particular. This story is fictional, but we need a lead character and decided to call him Fred.)

Finally, it looks like the weather will break, forecasting two weeks of high pressure, clear skies, and warm temperatures. Fred even has enough help between the hired staff, and family who have offered to come home for a week or so. He must get this crop off quickly, as fast as possible. Fred needs another combine.

Fred cannot afford to think about this for too long; everyone is in the same situation, and they could be looking at adding a combine to their farm as well. He heads into town, speaks with his salesperson, and acquires a quote. It’s higher than he wanted, or was expecting, but Fred is in a bind. He just heard that there are 2 other quotes on the same unit. He writes the cheque for a deposit.

Now comes the hard part – seeing the banker.

Fred recalls the feedback he was given before seeding time: things have been a little tight, and pulling back on any capital expenditures for a couple years would be best. What if this gets declined? How will he get the crop off in time? Is his deposit refundable? Fred scolds himself for not asking when he wrote the cheque.

Fred arrives at the banker’s office unannounced. Luckily she’s in the office today. Thankfully he doesn’t have to wait long. He explain the situation: things are getting worse by the day with poor weather degrading crop quality, and thereby crop price; he has lots of help to run extra equipment to get harvest done in record time…if he had another combine. When she asks if a decent combine can even be found at this juncture, Fred proudly produces the quote he just received no more than a half hour ago. She says she’ll take a look at things, and call right after lunch.

Fred heads home. The temperature is climbing and the wind is blowing; he thinks he could maybe get going this afternoon. Everything is serviced and ready to go; after all, he’s only done 150 ac so far. Fred heads in for lunch early, hoping that will speed up the call he is anxiously awaiting from the banker. He scans his phone for afternoon market updates, text messages from any neighbors who might be rolling, and that critical phone call from the banker that just isn’t coming fast enough.

He can’t sit around; Fred fires up the combine to go out and get a sample. The wheat sample looks bleached. He figures he’ll be lucky to get a #2. Sticking his hand in the pail Fred thinks “It feels close.” He rushes back to the yard to test it: 14.8! That can go in aeration! Let’s go!

Fred reaches for his phone to let everyone know to get ready to go, but realizes he left it in the combine in the field from which he just took a sample. Fred jumps in the semi, and even though it hasn’t warmed up enough yet, he hustles out to the field. Word will get to everyone via the house phone, and they’ll get out to the field right away.

Once back in the combine cab, Fred finds a message on his phone: it’s the banker! She wants him to call her right back. He does, and the call goes straight to voice mail. Fred swears.

She calls back in the time it took to fill one hopper. As Fred unloads into the truck, she tells him that she cannot approve a loan for the combine. She says that Fred’s cash flow is too low and his debt levels are too high to take on another liability for a “nice to have” asset. She talks about other options for this harvest, and offers clear feedback on what needs to happen in the future to not have these kinds of interactions with her again, but Fred has already stopped listening because he’s moved on to thinking about who else he can call for financing, wondering if the dealers program can turn an approval in less than an afternoon…

Fred immediately calls his salesperson at the dealer, and a couple other leasing companies, to ask them to begin an urgent credit application. They’ve got all his information now; he’s been in touch with them a couple times this year already when the banker has denied his other requests. Fred begins to wonder why he even bothered with the bank this time.

An hour later, Fred gets a call from the dealer; their financing division has approved his combine loan application. The interest rate is higher than his other loans, and the payment terms are more rigid, but he is not worried about that now – Fred can get that extra combine!

Jubilation turns to anxiety: the dealer cannot deliver until next week, and it hasn’t been through their shop. Fred will need to invest a half-day to have someone drive it home (who can be freed up to do that now that the harvest is rolling again?) Fred realizes this combine will probably need some repairs and some parts (more trips to town on the weekend.) On top of all that, he realizes that he’ll have to shut down himself to go in to town, sign the loan, sign the equipment sale agreement, and hopefully get to the insurance office before they close for the weekend. At this point, Fred might as well drive it home himself!

Yup, having a 3rd combine will make short work of Fred’s 5,300 acres! He acknowledges that he’ll have a serious amount of harvesting capacity for his farm size, and despite what he was told by the banker in spring and again today, Fred still got approved the loan. And if Fred got the loan, his business can’t be in as bad of shape as the banker says, right?

Direct Questions

Why does Fred exclusively use his creditor’s approval or decline of his credit applications as the barometer of his business’ financial stability and position?

How does Fred account for the differences in lending criteria and motivations between creditors when using their feedback as his business barometer?

What do you use as your barometer of business health?

From the Home Quarter

In our story, Fred clearly does not take the time, nor does he have the interest in understanding the financial ramifications on his business from the emotional decisions he makes. He continues to forge ahead by using any and every source of credit he can grasp. What happens when his requests are denied? Is it only then that his farm is in a position of financial weakness?

When focusing on priorities, I advise my clients that there are often times more important issues than upgrading equipment and constructing more buildings because credit is (relatively) easy to get, and has been for some time. As such, using credit approvals as the only, or primary, business barometer is narrow in scope, biased in feedback, and lofty in risk.

 

goal planning

Goal Planning 2016

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Thinking about 2016? Here are some of the goals that my clients are making a priority in the new-year:

  1. Reduce Equipment Cost per Acre
    Fully recognizing that equipment costs are one of the few expenses that are controllable on the farm, yet it is this controllable expense that is often least controlled, many farmers are looking hard to find efficiencies in their equipment line. The “nice to have” is being measured stringently against the “need to have” and consideration is being given to divesting assets that are deemed expendable.
  2. Establish a New Lender Relationship
    Each lender that plays in the ag field has an area of strength that makes them unique. Some rely heavily on equity; others focus more on cash flow. One may be strongest when lending for hard assets, another for operating credit, another for quota, and yet another for leasing. When your lender’s strong suit does not match your business plan, it is likely time to find a more fitting borrowing relationship.
    Unfortunately, if your borrowing approach has been piece-meal credit from several sources, the first step is for you to determine what your business goals are before seeking the right lender.
  3. Construct a Workable (Usable) Business Plan
    Having a formal business plan helps immensely when seeking a new lender. But if you’re only building a business plan to appease your lender, then please read on.
    A business plan is not a restriction like the “room seating capacity” on a liquor license. The business plan is your road map, your guide of the best actions to take in the immediate future based on expectations and identified risks. Your business plan will also lay out alternative maneuvers that will help you act quickly in the case of unforeseen circumstances.
    A business plan should not restrain you in a box; it should create awareness of opportunities & risks and lay out the best plan of action based on your existing situation and your goals.
  4. Define Appropriate Land Rental Rates
    In a trend fueled by greed, rental rates in many areas are now at unsustainable levels. Whether viewed as a factor of gross revenue per acre, or a factor of fair market value per acre, there are many geographic regions of the prairies where land rents are unsustainably high. (There are also some areas where rates are still very low/tenant favorable.) The landlords are not entirely to blame for getting us here, or for keeping us here. There first needed to be someone willing to pay exorbitant rates in the first place, and there continues to be those willing to keep paying them.
    Some of my clients desire a plan, a strategy, for determining a mutually beneficial land rent agreement with their landlords.  This can be a challenge when landlords are becoming increasingly distant and isolated from the goings on at the farmgate, not to mention absentee landlords who know nothing of modern farming. The argument for/against cash agreements, share agreements, and flexible agreements depends on many considerations, the most important of which is the relationship between landlord and tenant.
  5. Increase Financial Awareness and Confidence
    Even sophisticated business people find value in having an advisor critique the decisions being made on their farm. In a world with so much “noise,” confidence in our choices can be more difficult to realize when faced with multiple options (and no shortage of propaganda supporting/decrying each.) More and more farmers want an independent unbiased view of their financial position. Knowing where you stand today is key when trying to determine how to prepare for tomorrow.

Direct Questions

What are your goals for 2016? Have you documented them? Have you shared them with your family and/or your team?

How do you prioritize your goals? What makes them realistic and achievable?

What is your plan to ensure you meet your goals? What is your plan if circumstances change?

From the Home Quarter

A plan is only as good as the work that is put into it. It is true that things change very quickly in production agriculture: weather, markets, etc. Being prepared before such deviations will make managing the change easier, more efficient, and provide you more confidence when doing so. A business plan need not be a 48 page behemoth (who would actually refer back such large document throughout the year?) The purpose of your plan is to be prepared, decisive, and responsive. The physical document should reflect that.
We are helping several farm businesses refine their direction for 2016.
To set Your Farm Compass™ Strategy Plan for future success and growing profits, call me or send an email.

insurance contract

Risk Transfer (a.k.a Insurance)

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I spend a lot of time thinking about risk management. Often the focus is around “cost-benefit” and the “what-ifs” that need to be applied to every business decision we make. But recent conversations with some of my insurance buddies have sparked this writing and a discussion on how you can take advantage of risk transfer.

Risk transfer is as the name implies: you are transferring the risk of harm to a third party. That third party wants to be paid to take the risk, and as such asks you to pay a premium. This is nothing new for almost all of us.

There is a piece of this equation that may be unclear for some people. Similar to how a lender won’t finance 100% of the value of an asset, insurance companies won’t necessarily insure 100% of the value of an asset. They need some comfort in knowing that you will also incur a loss in a claim situation which they expect would incite you to take appropriate measures to protect the asset. This coverage gap, combined with the deductible, is the risk you retain. The amount of risk you wish to transfer (insurance coverage) and the amount of risk you are prepared to retain determine the amount of the premium that the insurer will expect. Again, this is nothing new, but the part that is often overlooked is the value of the asset in the policy.

A couple of years ago, I made a referral in to an insurance broker for a full farm review. What the broker discovered was that a brand new fully loaded farm shop was insured for replacement value, but only for $20,000 in contents. This was easily $80,000 too low based on what was actually contained in this particular shop. In this situation, the insured (the farmer) had to acknowledge 1 of 3 things:

  1. He chose to retain $80,000 of risk (plus deductible) if the shop and contents were a total loss;
  2. He was unaware that he was grossly under-insured;
  3. He was unaware of just how much the contents of his shop were valued.

In this example, the farmer was poorly advised in 2 of 3 points above because “being unaware” of coverage gaps is an excuse your insurer won’t feel sorry for, nor with they pay. The other point (retaining the risk) may have been strategic, but the broker doing the review did an excellent job of identifying these kinds of coverage gaps. When assets are bought, sold, or used up & discarded, the effect on your insurance coverage can be significant. If you have not reviewed your coverage thoroughly for a few years, you may be holding coverage that is far from meeting your needs.

The other aspect of risk transfer that is too often ignored is liability. Liability is very affordable, yet, according to many insurance advisors I speak with, it is rarely included to a suitable scale in farm risk management strategies.

Direct Questions

When was your last insurance review? Like your business plan, your crop plan, and your estate plan, your insurance plan should be reviewed at least annually.

How well can you describe your liability coverage on your farm? What is covered? What is not covered? Can you afford to find out AFTER an insurable incident?

Do you have contractors, salespeople, and visitors on your farm at any point through the year? Are you covered if they get hurt while on your premises? What about on your rented land, who is liable: landlord or tenant?

From the Home Quarter

My company and I carry different kinds of insurance for different reasons. For your interest, I carry a Commercial General Liability policy. This covers me when I’m on YOUR property. YOU can take solace in knowing that if I should somehow cause damage to your property, I have paid to transfer that liability to a third party.

The risk you face from allowing an uninsured person onto your property can be staggering. Imagine the ramifications if a delivery of anhydrous ammonia went wrong while a visitor was on your property? If that visitor, or the driver, was seriously injured from the NH3, and if your supplier was not covered or insufficiently covered, the ball gets handed to you. Make sure that those who you allow on your farm carry their own coverage, and ensure you have your own coverage too.

grass

BMP – Best Management Practices

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BMP’s, or Best Management Practices, are also often referred to as “Best Practices.” Commonplace in
corporate culture, the primary benefit served by BMP’s is bringing consistency to methods or techniques
used to accomplish a task or objective. Also focusing on efficiency and ensuring the best use of available
resources, BMP’s are everywhere, even if they aren’t documented in a manual somewhere.

Your farm is no different. Over the years, you’ve likely established a BMP for the way in which you
service the combines in season. With good harvesting weather typically in short supply (especially this
year) you’ve got “a system” for how you deal with blowing out filters, cleaning windows, greasing,
fueling, and the circle check you do to identify trouble spots like belts, bearings, and chains. If, and
when, you have new employees on the farm, how do you convey your “system” to them?

Is it fair to say that the Best Management Practice you’ve worked out for servicing combines, for
example, isn’t available in an employee handbook, or even on a notepad somewhere? It’s in your head.
It’s just what you do. It’s habit. It’s automatic. It’s common sense.

What may be a common sense natural work flow to you might be as abstract as a foreign language to
your new helper, your spouse, or your kids.

You may have felt the same angst as your new helpers at harvest while listening to your banker describe
the nuances of your financing arrangement, or your lawyer discussing tax implications. It can feel like
they are speaking a different language.

In your business, communication is the answer. Any best practices you have developed over time
(documented or not) are useless if not effectively communicated to the right people.
Best Management Practices apply to many aspects of your business, such as:

  • Managing financial data
  • Processing invoices
  • Servicing equipment
  • Soil conservation
  • Employee engagement
  • Etc.

This list is by no means exhaustive and could go on & on. There is likely a best practice you could think of
for just about everything in your business.

Direct Questions

How many specific Best Management Practices do you already have in place on your farm? How many
are documented?

How could your stress level be reduced in the busy season if you had BMP’s documented for new
helpers to review and be comfortable with prior to “trial by fire?”

It isn’t realistic to implement a BMP for every task on your farm, but what would it take to do so for the
most critical functions that take place through the course of a growing season?

From the Home Quarter

Best Management Practices are everywhere, they are all around you whether or not you see them, have
formalized them, or even give them a moment’s consideration. They have helped you expand, do more
with less, and streamline workflow. They are available in all aspects of your business, if you chose to
seek them out and implement them.

Over the winter, I will be spending time with each of my clients working on several issues, with one
being Best Management Practices. If you’re interested in learning more, please email me or call
anytime.

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.

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.)

wheat

I Can Do It Alone…

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As entrepreneurs, we generally put our shoulder to the plough and find a way to power through the
work that lay ahead of us. Staunchly independent, we rarely ask for help. I believed that for quite some
time myself…I mean, it’s a pride thing right?

Then my mentor gave me 5 simple words, so impactful and so true, yet these are words we’d never
recognize until someone throws them in our face; “You can’t consult to yourself.”

I can’t build my business alone. I can’t be an expert at everything. There is no way I have enough days in
this lifetime to gather all the knowledge, experience, feedback, networking, and intellectual property to
“do it all myself.” I need help in areas where “I don’t know what I don’t know” and so I seek it out from
others who have proficiencies that I do not. I’ve hired a consultant, and I take part in some excellent
networking associations.

I belong to two ag focused advocacy groups: Saskatchewan Young Ag Entrepreneurs (SYA)
www.saskyoungag.ca and the Canadian Association of Farm Advisors (CAFA). www.cafanet.com These
are not lobby groups, or policy groups; they are not groups focused on any one commodity or sector.
They are channels for farmers and farm advisors to share successes and struggles, discuss challenges
overcome and opportunities lost. These are the places to learn what your peers are doing right, and to
learn from their mistakes. Neither increases my workload with committee obligations and the like. Both
groups are completely focused on improving the industry we are all so passionate about.

SYA is a young dynamic cross section of what the future of farming looks like in Saskatchewan. I describe
this group as “the movers and shakers; the future of our industry.” Typically under age 40, these
entrepreneurs vary from small acre grain and mixed farms, to large scale grain operations; from organic
farms to farm advisors/suppliers/retailers. Each member brings something unique to the table.

CAFA is a national organization that is meant to bring together the advisors that help farmers with the
complexities of operating such a diverse entity. This group includes everyone from bankers to lawyers,
agronomists to accountants, grain marketers to tax and financial advisors, management consultants to
farmers (yes, we have a few farmers involved and they all speak very highly of being a part of CAFA.)
This group helps me, as a management consultant, understand more about other opportunities to help
my clients in areas that I am not an expert. We all have the same goal: find new ways to make our
clients better off. I regularly engage my CAFA colleagues when I have a client with an issue that needs
more expertise than I have (like HR strategies, estate planning, etc.)

These 2 groups provide me with a terrific combination: one group helps me stay on top of what is
keeping farmers up at night by listening directly to a diverse collection of farmers face to face and not
hearsay or coffeeshop chatter; the other group helps me strengthen my skills and my network of
qualified peers who can help me help my clients. I value each of these groups equally, and work hard to
never miss a gathering.

CAFA has regional chapters that meet monthly. Always with a topical presentation from an industry
expert, it’s 1-2 hours once per month (usually over breakfast or lunch.) The annual provincial conference
(yes, each province has one) is scheduled in the winter.

SYA meets a handful of times each year, mostly because the membership is busy farming!
But their PreSeeding Social, their Provincial Farmer’s Golf Tournament, Field of Dreams Tour, and Winter Convention
are always informative but most importantly, FUN!

So if you’re still reading, you may be wondering why I have dedicated an entire article to these two
associations. It’s simple: both are agnostic in their focus (as long as it’s AG,) both are tremendously
beneficial to me and my business, and both have found themselves generally flying under the
radar…meaning neither gets much press in print or on TV/radio. Neither operates with a big budget to
afford more advertising, yet both need to have more attention paid to them because of what they bring
to the table.

Direct Questions

Who do you turn to for feedback, when you need a sounding board, or if you want to learn about
firsthand experience on a new topic, idea, or strategy?

Do you ever find yourself wishing you had a mentor, or someone who has been down the same road
you’re travelling?

Have you found yourself facing a situation or dilemma where you didn’t know what to do or who you
could call for help?

From The Home Quarter

It is funny how easily we can become an island, feeling alone in our own world with little opportunity to
change the situation. Social media is great, but it cannot ever replace human interaction. It doesn’t have
to be that way. There is always someone who has faced the same battle you are facing today. There is
always someone who has expertise in an area in which you feel overwhelmed. There is always someone
who knows someone who knows what you need to know (referrals go both ways!) Membership in
either of these associations is an investment in yourself and your business.

If you’d like help planning your farm for business and personal success, 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.

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.