Custom business

Custom operators like Troy Monea are under pressure to boost customer service and to intensify their business management. In this game, there’s less and less room for the uncommitted

The same stories get told over and over again. For instance, when Troy Monea was growing his busy custom farm business near Falun, Alta., he reached out to a potential competitor.

“They had got so big so fast, I didn’t know how I could compete,” Monea recalls. “I couldn’t offer what he was offering, so I went over one day and said, ‘This is what I’ve got. I’m not competition, but if you’re into a bind or a breakdown let me know.’”

A few weeks later, that other custom operator did have a forage chopper break down, and Monea was able to step in to help. Today, they work back and forth regularly and keep in communication constantly.

It turns out custom operators are pretty good at sorting out who’s serious about the business.

Similarly, about four hours south, when Sean Stanford started his custom spraying business four years ago, he too found that co-operation was more important than competition.

Stanford, who farms and custom sprays near Magrath, a half-hour south of Lethbridge, went to another established custom operator, about 30 km away, and looked for advice. “I told him my business plan,” he says. “I told him I didn’t want to compete with him, I wanted to run alongside him.”

“I told him I would not undercut prices and would not out-advertise him,” he adds, but it’s clear the two had already seen enough of each other that day to make a decision, and they’ve made it work ever since.

“If I’m too busy I will send some work to him, and if he’s too busy he’ll send some to me,” Stanford says. “We’re not in a business relationship, but we have a good friendship.”

Troy Monea
photo: Anthony Houle

Lurking behind it all, however, for both Stanford and Monea and for their partners, is the strategic recognition of just how vital great customer service has become for today’s custom farming businesses.

The days when custom operators only had to be good with a wrench are long gone.

It’s the same in southern Ontario, where Nick Lenos operates a custom farming operation near Villa Nova, a half hour south of Brantford with his brother Shawn and father John. Like Monea and Stanford, the Lenos family believes that in today’s rapidly evolving agriculture, the successful custom operators will be the ones who really are dedicated to their customers.

For Lenos, it’s the most important differentiator. “The customer takes precedence over your own land,” says Lenos. “Other growers in the area do custom work as well, and their land comes first.”

For those who want to be serious about the business, customer service means more than just showing up with the sprayer at the right time, although it does mean that too. Unlike farmers who manage their farms within boundaries they own and control, the custom operator has many people to please, and they also have to deal with the weather happening on the farms of all of their customers.

But even this emphasis on customer relations has to be part of a larger package. It’s also essential, for instance, for custom operators to hone their accounting and their HR management skills far beyond what’s necessary on many farms.

All this means their daily decisions are filtered through the usual production lenses used by farmers (seeding and planting rates, fertilizer and spray details and rates, scouting, harvesting and logistics), plus their internal business demands, plus their focus on customer relations.

At Lenos Custom Farming, though, it starts with a clear focus. They aim to treat the land they work for other people as their own.

“If you see something in the field, you stop and pick it up. If there’s a tree down you let the customer know. You try to keep up with what’s happening in their fields,” says Lenos.

“When a customer needs to get wheat in, we’ll go past other fields so that we can get it in for them.”

The Lenos operation works some of Ontario’s most challenging soils in a 30-km radius of Villa Nova, covering much of Haldimand and Norfolk counties. Soil there can range from heavy clay to blow sand, which means in order to serve their customers, they maintain a large equipment inventory. That’s an extra financial burden, but they try to supply complete crop production custom work, from tillage and planting to spraying and harvesting.

Lenos Custom Farming started with John in the 1970s. At that point he was a dairy farmer, but also started offering some custom farming services, as he also enjoyed working with equipment. In the 40 years since, the business has grown significantly to include Shawn and Nick, as well as a full-time employee and two or three more seasonally.

Build on communication

Having open communication with customers is important for the business to run well, says Lenos. That involves communications from the custom operator to the farmer and back. When weather is variable, finding the right field to work that day can help efficiency.

“It all stems back to communication,” says Lenos. “You have to ensure you get the job done.”

Monea requires three days notice for spraying at G&T Custom Harvesting. But if a rig is in the area and they can work it in, they will.

Monea finds that his customers still want to see him at some point during the day. Complaints about employees are lowered if the customers have had some interaction with him. They know he is still in charge.

Farming is different from industries like oil and gas, Monea says. There, a company president might have no direct contact with customers, and their role may be all about logistics and price. But that’s not going to cut it if you want to excel with a custom operation.

“If I’m not there with that relationship and trust that’s been built from the beginning, it hurts me,” Monea says. Even a half hour is enough, he says.

There are busy times in custom farming, and they often all come at once when a crop reaches a certain maturity at the same time in the same area, or when disease or insect pressures reach a threshold calling for treatment across broad acreage.

“It feels like we’re busy for a month in the spring, then there’s a lull and a week of bugs in canola and everybody wants it on the same day,” says Stanford, of Twisted Iron Farming, in southern Alberta. “The sprayer can sit for two weeks, then we’re going to 20 hours per day for three weeks to get caught up.”

Being able to tell a farmer who wants their insecticide on now that they have to wait two days is tough. Long-term relationships and trust make it easier.

Telling them the truth is the key, says Monea. That might sound simple, but it has been part of his business growth.

“I know people who were upset about custom operators,” he says. “They would ask when they would be coming, and the operators would say they’d be there tomorrow, instead of telling the truth, that they were backed up three to five days.”

“One of biggest things that makes us successful — we will make sure we are on time. We will book a little less to make sure we get to them.”

Custom farm operations tend to divide into two camps: farmers who spread their equipment costs over more land by doing some custom work, and those who are custom farm operators first.

Stanford at Twisted Iron Farming is in the first category. He and his wife Amberley run about 400 acres, not enough for a full-time farming career. Stanford works during the off-season as a mechanic in Lethbridge, but devotes himself full-time to custom spraying and his own acreage during the crop production season.

About four years ago he learned the local Crop Production Services (CPS) outlet was getting out of custom spraying. “I saw an opportunity to jump in. We bought our own sprayer and then asked them to send people our way,” he explains. Word of mouth advertising and relationship building also helped at the start.

He runs his Apache AS10-10 hard during the growing season, aiming to cover about 20,000 acres each year. Most of his customers are smaller, between 500 and 1,000 acres, but customers of that size value his service since they are unable to justify purchasing a high-clearance sprayer.

Complex record-keeping

Attention to detail is important for Stanford, and has to be for every custom sprayer, he says. Keeping track of the details requires dependable record-keeping systems.

In Stanford’s case, his wife Amberley looks after the accounting for the farm and the spraying business, but Stanford has to be able to hand her a stack of accurate record sheets at the end of the day.

Customers then get field record sheets. “Everyone has a paper trail and my butt’s covered,” Stanford says. “Without someone to full-time keep up the books, I would be drowning in paperwork. Having someone who is computer savvy and keeping it up is a lifesaver.”

The need for records is even more important now that so much data is created by cropping equipment, with data that needs to be shared with farmers.

In Monea’s business, his wife Holly also manages the books for the large operation. She was a bank account manager until deciding to switch to the business full time, where her role is crucial to managing their growth. They are now looking at whether they need more office staff, including a dispatcher for the numerous pieces of equipment they have on the fields in central Alberta.

The backbone of Monea’s custom farming business is silage harvesting, although the business has changed in the past 10 years as the number and size of feedlots and dairy farms has grown in his area.

Monea says he was running a round baler at 10 years old. “We were taught safety first and foremost. I was not unsupervised for very long.” But it gave Monea a taste of the business that became his career. He had an early passion for farming, and remembers reading seed guides and keeping up on crop trial data at 12 years old.

The Monea’s farm just under 5,000 acres, some owned, some rented, and look after seeding about 12,000 acres, including their own, and spray between 35,000 and 40,000 acres, including their own. They harvest custom silage for cereals and corn and also have a custom trucking business. They mostly haul grains, mainly canola to the Cargill crush plant in Camrose.

Troy bought out his father in 2002 and now is the sole owner and president of the company.

Outside help

Custom farm operators, like most farmers, have help they rely on outside of family. In Monea’s case, that’s 10 full-time employees, accountants and a supportive banking system.

Managing employees is one of his largest challenges, in part because with 10 employees, there is always some turnover.

“We are fortunate that we’ve had many people with us for many years but, still, the limitations come on the human side, not the equipment,” says Monea.

Even in an area of Alberta where laid-off oil and gas workers are plentiful due to the downturn in the oil economy, it’s still difficult to find people who want to work.

“There are two different classes of wages, two different ethics of work,” he says. He finds some employees are all about the wage. Others are about doing meaningful work that they like.

Monea tries to go the extra mile, helping out his employees who farm. Some can borrow a truck to move grain. Others can borrow equipment.

One employee bought an air seeder and Monea put a tractor on it and gave him some customers. Now that employee has built up his own customers, which means Monea essentially created a competitor, but he has no problem with it.

Monea, by the way, says technology has greatly reduced employee error, including maps in sprayers and the shutoffs in the equipment.“The risk of wrong application and mishaps is hugely downgraded with technology,” he says.

Trusted supplier

Being a trusted supplier to a farm is even more important when commodity prices drop. That has made the past few years, with low grain prices and more recently, cattle and hog prices, a challenge. Most custom operators are also farmers, so they know where the pain is coming from for farmers.

“We are still charging the same rates we were four or five years ago… and I hate it,” says Monea. He would like some of the increased efficiency of equipment to drive less cost to his customers, but those larger and more efficient machines have also doubled in price, especially for large self-propelled harvesters and combines.

Monea says the capacity increase has matched the price increase for harvesters, but the doubling of the price of combines is harder to take as the capacity has far from doubled.

“We haven’t changed our prices since we started,” says Stanford. “Fuel price is up 20 to 25 cents per litre since we started, but we’ve kept the billable price the same. We all know these are tough times.”

Larger and more efficient equipment has helped the Lenos family, but they are keeping equipment a bit longer. They also do most of their own repairs in-house. “These are big costs but you can’t push them onto the customer. You can’t put combine rates up $5 every year.”

Instead, you need to be the farmer’s best partner and supply a service they can’t match with the equipment they can afford to buy. In an era of growing precision advantages in farming, that’s an argument that sells.

“The biggest thing is the relationship with your customer and knowing their needs,” says Lenos. “You can work through a lot of good times and a lot of tough times when you understand their businesses.”


It’s business. But is it still a farm

Are custom farm operations just farms by another name?

Not according to government and taxation rules, which may be something you don’t discover until it’s too late, and the government is classifying you as a custom operator business and no longer a farm.

Make sure you maintain your qualified farm property designation, say David Engdahl and Shea Ferster, accountants, business advisers and partners with MNP in Saskatoon.

“I can’t stress how important it is to maintain that qualified farm property status,” Engdahl says.

Custom farm businesses are treated like any other non-farm business. That means there can also be implications for succession planning. For example, shares in a farm corporation can be rolled over and gifted tax-free to children or grandchildren, which can’t happen in other non-farming corporations.

Engdahl says the custom operators he works with separate their businesses, so that the farming that they do will be managed as a farm, with the tax advantages of a farm, and the custom farming business will be run separately.

A second major area of difference between farm business and custom farm operations is that farm businesses are taxed on a cash basis, while other businesses are taxed on accrual basis. That means, for instance, that farms can time a grain cheque for the best tax outcome.

In non-farm businesses, income is taxable after the work is performed.

Expenses can be the biggest challenge when the business is split between a farm and a custom business. Say a grain buggy tire goes while you are in one of your fields. The tire blew while doing work for the farm business, but most of its wear may have been while running the roads and fields for the custom farming business. How do you apportion the expense?

Another challenge is accounting for equipment. Custom farmers usually use acres to determine whether the machine is used more for their farm or custom work businesses.

However, other measures like hours may be necessary. Engdahl uses a bunk silage pack tractor as an example of a piece of equipment that runs for hours, but covers little acreage.

Other important factors include making sure you have the proper liability insurance coverage for running the roads and working other people’s land as a custom operator. Farm insurance packages won’t cover it. And in some provinces custom operators will qualify under workplace protection legislation, while farms may not, or may be under different levels of regulation.

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