When asked to define “success,” most farmers will tell you it’s about more than money. Family often comes up. High yields and good soil health are top of mind too, and health, safety and employee relations can be as well.
We know these non-financial factors are important. Still, when the farm team gathers at the end of the fiscal year to assess our annual performance, the discussion revolves around finances. We do talk about the non-monetary things, but when we’re measuring our success, we come right back to financial ratios and per-acre profits.
We can count dollars, but there are ways to assess non-financial business factors too. So why don’t more of us use them?
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We need profits
There are obvious arguments for putting financial measures first. If we aren’t making money, our farms won’t be in business in the long term, so any other measures are less important. And looking at financial measures is just easier than looking at anything else.
Our annual financial results come ready-made with numbers we can compare against last year and against industry benchmarks. It’s much more difficult to measure success in our relationships with our in-laws.
Larry Martin, principal with Agri-Food Management Excellence, was asked to study whether farmers who use strategic management practices are more successful than farmers who don’t. Country Guide readers won’t be shocked to find they are, but before Martin could study the correlation between strategic management and success, he had to define “success.”
In the paper describing his results, Martin writes that, of course, farmers are motivated by more than just profit. But he didn’t find much academic research that quantified non-financial measures of success. This makes sense, he writes, because it’s tough to plug a goal like “enjoy the rural lifestyle” into a statistical model.
Financial success is easy to measure and it is also helpful for a very good reason. Martin writes: “Increasing profit is correlated with achievement of non-economic goals.” When we’re not financially successful, our relationships are strained and it’s more difficult to contribute positively to our communities.
“Mental health is often most threatened by not having enough income to service debt and not knowing what to do about it,” Martin adds.
In defining success for his study, Martin concluded that financial success is not farmers’ only objective, but it is correlated with everything else, and it is the simplest thing to measure.
Other measures of success
Many non-farm businesses use formal methods to measure non-financial goals. The “balanced scorecard” method “balances” financial results with other data. A company’s balanced scorecard might measure factors like employee turnover, customer satisfaction or product quality.
The economists who developed this method, Robert Kaplan and David Norton, suggested in a 1992 Harvard Business Review article that the scorecard is like the instruments in an airplane cockpit. The right set of measures can help monitor business performance beyond the balance sheet.
There’s no reason farmers couldn’t use this method. If “spending time with family” is a farm’s key objective, it would be hard to come up with a number to measure it, but it wouldn’t be impossible. The farm could do a survey of its team members every year, and ask them to come up with a rating, perhaps on a scale from one to 10. Or, a farmer could set and track family-oriented goals, like “number of days spent at the lake.” With creative design and a willing farm team, any important goal could be evaluated annually.
The “triple bottom line” is a similar management tool. “Triple” usually refers to “profits, people and the planet.” Companies using this approach typically add environmental impact to their strategic plans and find ways to measure progress in this area. Farmers might measure soil organic matter as an indicator of soil health, then compare measurements from year to year to see how their soil is changing.
Theoretically, any non-financial goals could be evaluated by setting related key performance indicators (KPIs) and reviewing them regularly. To make this work, a farm would have to choose its indicators carefully and ensure they relate directly to the farm’s goals.
For example, a farm that prioritizes safety could use “number of avoidable accidents” as a KPI. This could be measured and compared year to year. A large farm where a focus on employee relations is important could measure “number of employees that stay through to the end of harvest.” This KPI is easy to measure, and, although not perfect, it is aligned with employee satisfaction.
Lots of family farms are focused on passing their family farm on to the next generation. It’s difficult to decide what to measure to capture progress toward success in this category, but there are probably viable indicators. For example, “Number of hours spent working directly with my daughter,” might be an indicator that a farm owner is making a conscious effort to pass on knowledge.
Why don’t we do it?
Most of us meet with our accountants to discuss our farm’s financial success at least once a year. These meetings are, obviously, necessary and helpful. But maybe they’re not enough.
Dean Klippenstine is a partner and advisor with MNP’s agriculture team. Klippenstine knows many of MNP’s farm clients have concerns that go beyond financial ratios. “There are other goals and objectives depending on your stage in life and position.”
These goals and objectives are personal, meaning not all members of a farm team will agree on exactly what they are. Setting them is difficult, and helping us do that is not our accountant’s job.
“Accountants aren’t typically wired to coach that out of people,” Klippenstine says. Instead, he recommends peer groups or coaches.
Non-financial goal setting is relatively new, Klippenstine says. But these days, “we’re seeing farms that now have wealth beyond their financial needs.”
Klippenstine suggests that farmers working on non-financial goals find help. “Go do a strategic coaching session with whoever you think would be valuable to help you. And get out of the noise of the farm to do this. Go to Canmore, or Hawaii, or the Moose Jaw spa.”
Once you have your goal, there is a payoff, he believes, “every decision that comes in front of you is actually pretty simple.”
What should we measure?
Danielle Wildfong is a farmer and a family business coach who often helps farm families set non-financial goals. She knows success is about more than financials. “It has to be, or else what’s the point?” she says.
Wildfong has her farm clients consider their values before setting goals. She has each member of the farm team identify their four to 10 core personal values. “Those values are really your guiding principles on how you want to operate this farm,” she says. Some things people might put on this list are joy, accountability, integrity, trust, communication or pride.
Wildfong says members of a farm team may not all have the same values. Sometimes, to draw out each person’s true values, she’ll ask questions along the lines of, “Is that something you live personally, or do you just choose it because your brother likes it, and you want to move on?”
Working with a coach to identify non-financial goals that appeal to the whole farm team, and Wildfong suggests farm teams have informal sit-downs to discuss non-financial metrics.
For her clients, Wildfong adds, success is “having the ability to adapt and evolve, and be able to solve problems together.”
Of course, the measure of success is well beyond financial numbers. “You can put profit first above all else, but I think you’ll be lonely,” Wildfong says.
For most of us, it’s difficult enough to set and achieve our farm financial goals. Getting the whole farm team to agree on non-financial goals, coming up with creative ways to measure them, and then taking the time to record these measurements and review the outcome is a whole world of new complications, meetings and tough conversations.
But we can all agree there’s more to life than just our income statements. Some years our farm’s financial success isn’t related to how hard we’ve worked, or whether we stuck to our business plan. A hailstorm can wipe out a year’s profits. A timely rain when prices are high can bring on record profits without any management changes.
Measuring success beyond profit numbers can help us keep these income swings in perspective and help us see that, even in a bad year, we’re still making progress toward our “real” goals.
It wouldn’t be easy. It would take planning, and probably heated debates among the farm team. We might need to call in coaches and consultants. It would definitely take time. But Canadian farm families don’t usually default to “easy” when they see better options.
Resources
- The Balanced Scorecard by Robert Kaplan and David Norton. To read, Google “HBR The Balanced Scorecard.”
- The Relationship Between Strategic Management and Success in Farming: A Literature Review, by Dr. Larry Martin, on the Farm Management Canada website, fmc-gac.com.
– This article was originally published in the December 2023 issue of Country Guide.
