When prices are good, do you pour every last dollar back into the farm or do you take some of that hard-earned cash to enjoy life a little? We asked three experts to weigh in with advice on management strategies when prices are good.
Gary Mawhiney, human resources expert at the Ontario agriculture ministry, says it’s essential for farmers to reward themselves.
Farming is stressful. It’s also something of a society unto itself, with its own rules and expectations — including a huge amount of respect for self-denial.
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Sometimes farmers get so caught up in the image that they forget they need to live a little too. Yet a healthy work-life balance is essential to the long-term health of the farm, Mawhiney says. Otherwise, the farmer’s health is in jeopardy, and equally important, essential family relationships feel the strain too.
So how can you use a good year to put your work-life schedule into better balance?
1. SPLURGE ON YOURSELF
Celebrate success by putting in a swimming pool, taking a vacation, doing a kitchen renovation or simply making a habit of treating yourselves by going out for dinner with friends and family.
The choice will depend on individual needs, wants and aspirations, Mawhiney says. But at bottom, the same rationale is consistent across farms, and should be recognized.
You might think you’re doing well because of commodity prices, and of course there’s more than a bit of truth to that. But what you’re celebrating is that you have the strength, dedication and commitment that has put you in a position to reap those rewards.
There are many former producers who didn’t make it this far.
Deb Calverley agrees. “Farming is a high-risk business with many variables beyond the producers’ control,” says Calverley, grain farmer and business adviser with Meyers Norris Penny LLP at Deloraine, Man. “Trying to stay ahead of all the continuing variables in farming and having a successful end result is definitely worth celebrating.”
Even so, it pays to put some thought into exactly how you pass out the rewards. Mawhiney, for example, stresses the importance of good human-resources planning when it comes to sharing profits among multiple partners and employees.
2. AVOID IMPULSE BUYS
Calverley cautions against the temptation to overspend when times are good. “When the money is flowing, it’s easy to forget those bad years when the money was tight,” she says. Producers should have a capital plan as part of their business plan and refer to their three-, five-and 10-year goals to help avoid impulse buys.
John Anderson, a business adviser with Collins Barrow WCM LLP in Kingston, Ont., recommends that after taking a bit of time (and a bit of profit) to taste the wine and smell the roses, farmers should use the success of today to increase the potential for success tomorrow.
“Some of the greatest losses are the opportunities that were never seized,” Anderson says.
Anderson recommends farm managers start with a SWOT analysis on their farm operations. What are the business’s strengths, weaknesses, opportunities and threats? Good managers realize that if it’s profitable, others will get into it and then supply will exceed demand and prices will fall or someone will figure out a way to do things cheaper, he cautions.
“There’s a domino effect,” Anderson says. “When profits go up, input costs go up and the contribution margin (gross revenue minus the input costs related to the enterprise) shrinks.”
3. SHARE, BUT BE FAIR
Reward levels need to be fair to all and they must reflect each person’s contribution to the success, especially for a farm that has several families involved or several key employees who are vital to the success of the farm.
The human resource side of farming is becoming increasingly important in the overall planning and management of today’s farm operations, agrees Calverley. Farm structures are continually changing with more multiple owners, multiple families and third-party employees.
Having all the different roles and job descriptions outlined and documented may sound like something only large corporations need but such processes are highly valuable in today’s farming, she says. “If everyone on the team knows how everyone works together, then hopefully successes can be shared with everyone.”
Any kind of reward also needs to be within the parameters of the overall business plan. “It’s important to give the reward in such a way that the recipient knows it has been earned based on specific goals, so they do not feel that they have an entitlement and feel put out in subsequent years if it is not received,” says Calverley.
Where a farm has a retail component, it’s a good idea to share success with your customers. “A retail business cannot be successful without its customers,” emphasizes Calverley, “but the type and cost of the celebration needs to be appropriate. Customer appreciation events or a discount with savings on future purchases are some good ways to celebrate success with customers,” she suggests.
4. BE REALISTIC ABOUT TOMORROW
Good managers need to figure out how best to invest in case next year isn’t a good year, continues Anderson. “They are realistic about future prices rather than being overly optimistic.”
Anderson gives the example of one of his clients, an apple grower who saw an opportunity to expand his operation. He used profits from his pick-your-own apple operation to purchase bulk coolers and began producing apple wine. In this case, the profits were used to stretch markets and position the farm for future growth. For some farmers a SWOT analysis may show that the debt load of the farm is a potential threat and profits would be best used to pay down debt, he says.
By Comparison, Weaker Managers
will often invest in farm equipment or a new truck that’s not needed, says Anderson. “Many farmers are over-invested in steel.” He gives the example of a farmer who wanted to use profits to buy a new combine but when they did the math with him, it showed it was far cheaper for him to continue to hire a custom operator.
Financial decisions will also depend on the age of the farm manager. “Generally older farmers have a tendency to be more conservative due to having endured hardships with very few risk-management options,” explains Calverley. Younger farmers may be more apt to spend money than their parents but they are increasingly running their farms like a business with business plans which address production, marketing, capital, human resources, cash flow and risk management.
“As the transition of management occurs across the country the two generations will work together and capitalize on both their strengths,” Calverley says.
When times are good on the farm, take the chance to enjoy some of that hard-earned windfall. Farming is stressful and it’s important to enjoy the fruits of your labours when you can, Mawhinney says. This is also a good time to use the extra cash to position your farm to meet your future goals. It all comes down to knowing what you want and having a plan so you can make the best decisions at all times.CG
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“ The greatest losses are the opportunities that were never seized.”
— John Anderson
