When it comes to farm accounting, it’s increasingly about the details and it’s the farmers who notice them who come out on top. Here are the top four tips to get more competitive.
– April Stewart, CG Associate Editor
Blair Sanderson sees it time and again. “The difference between a good producer and a great one,” says the CPA and partner on MNP’s private enterprise team in Lethbridge, “is their attention to detail and their constant pursuit of raising the bar.”
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Across the country, farmers have dramatically upped their financial skills in the past decade. If you’re already on that track, what more can you do for even more benefits?
When it comes to farm accounting, Sanderson says, it’s increasingly about the details, and it’s the farmers who notice them who come out on top.
It’s like in the field, he says, “It’s a combination of improving many little things that add up over the years to separate the good producers from the great ones. Good is never good enough.”
In the boardroom, top performers go through their books with a fine–toothed comb, looking for places where their reports don’t align with their business plans. “These farmers could tell you their bottom line within five per cent without needing to look it up,” Sanderson says.
They have detailed business plans for the fiscal year that tie into their crop and/or cattle plans, he adds. “These plans don’t just collect dust on their desks, they are reviewed on a regular basis and any variances from the original plan are either documented or looked into and evaluated to see where improvements can be made.”
These are farmers who don’t need advice on the basics. They have a high level of financial literacy, they work collaboratively with professional advisors, and they know that even high performers occasionally need a nudge in the right direction, especially when the goal is continuous improvement.
Here are more tips too — free of charge:
1. Learn to take advice
Financially astute farmers know when to rely on experts for advice, says Riley Honess, CPA and partner with Thomson Group in Lethbridge. “They continue to learn, evolve, ask questions and adjust.”
These farmers spend serious time on business issues, they focus on strategic planning, and they leverage employees and experts to grow the farm.
Sanderson agrees that being receptive to expert advice is critical, and also recommends looking into whether assembling or joining a peer group could be good for the farm. Peer groups can also guide farmers who are looking for advisors they can trust, he points out.
“Have a good team of advisors, not just one, and make sure they work well together,” Sanderson says. It’s a solid recipe for growth, he says, and will help the farm make timely decisions with the best information possible.
2. Get going on succession
Too few farmers have succession plans, even among high performers, says Honess. “There are many operations that avoid this difficult topic for years.”
Does it matter? Honess says the answer is a definite yes. Postponing succession planning creates a kind of energy drain, he says. “At the end of the day, I think everyone wants certainty around what the plan is … This is huge for the success of the family-owned farm.”
It’s never going to be a one-size-fits-all solution, and the sooner producers can define it, and define roles for individual family members, the better.
“The best time to start succession planning was yesterday,” Sanderson agrees. “The next best time is today.”
3. Adapt your tax strategy
Outsource your tax strategies to the experts, Honess suggests, but be prepared for a lot of conversation.
Recognize that your tax strategy will be better if you have a solid plan for major expenditures and transactions, and this once again ties in with succession planning. The clearer you can be with your goals, the better the result.
It’s also wise to be prepared for the conversation with your accountant to explore areas and create decision points that you may not have anticipated.
“There are a variety of options that farming families can consider when transitioning their operations — for example, the potential utilisation of the Bill C-208 legislation introduced in 2021,” Honess says. “These rules can allow parents to sell shares in their farm company to the next generation and utilise their lifetime capital gains exemptions to fund their retirement. This allows for huge tax savings on the transition, but the legislation was recently amended and these rules are becoming more specific/restrictive in 2024.”
Further, Honess adds, farmers should always ensure they are able to utilize the intergenerational farm rollover rules and understand the tax effects of non-farm investments to their estate. It is vital, too, to review the corporate structure on an ongoing basis to avoid any unforeseen tax consequences.
Sanderson says MNP’s tax specialists work to maximize after-tax cash available to either grow the farming operations or plan to move cash/investments out of the farming operations for living and estate planning for non-farming children. “There are a few tools available to help make this more feasible,” he says.
He also recommends that farmers seek out farm management consultants to help them compare their results against their projections. “You can map out your cash flow, determine what amount of debt your farm can support, factor in stress tests to see what impact changing interest rates can have, and monitor your results to measure your success.”
4. Plan for the BEST, and the worst
Sanderson and Honess also say more farmers should also create a plan for more eventualities, so there are triggers when the best — or the worst — happens.
Depending on your farm goals, those triggers may seem counter-intuitive, like the way one of Sanderson’s clients spent the difficult 1990s focused mainly on land acquisition. The client saw it as an historic opportunity to grow, even if it meant other expenses might be deferred.
Becasuse of their plan, Sanderson’s clients weren’t shy of taking on debt, but locked in interest rates so they could predict payments within a five-to ten-year period. “In their business plan, they know they have excess cash flow and they’ve been aggressive about paying down their debt early so they have borrowing power when the next deal comes up,” he says. “They had a clear vision.”
“The more you plan up front, the more prepared you’ll be when opportunities arise,” Sanderson says. “Your operation will be prepared when headwinds prevail.”
– This article was originally published in the October 2023 issue of Country Guide.
