How enterprise accounting can integrate with day to day management to rev up the performance of your family farm corporation

Farmers today run large
operations, often with multiple
enterprises, and many of us work
off-farm.

Juggle, juggle, juggle.

Farming demands a higher
level of science, marketing know-how,
technology and financing
than ever before.

Juggle, juggle, juggle.

Since it s easier, we lump all
our assets and costs together into
a whole farm statement, but what
we really need are books that help
us determine in real time which

decisions are contributing to success
or failure.

Juggle, juggle, juggle.

Basically, we let our bankers
deal with ratios. We don t understand
ratio analysis as well as we
know we should, and we seldom
connect them to goal setting and
decision making.

Juggle, juggle, juggle.

We know that we could do a
much better job of keeping all the
balls in the air if we could link our
financial analysis with strategic
decisions. Managing our finances
at this level though would take
time, and new skills&

JUGGLE, JUGGLE, JUGGLE

Over the last five years, Rick Clouston has become an expert juggler. He s had to.

Based near Selkirk, Man., S & D Clouston Farms grows 1,800 acres of grain and 500 acres of hay and pasture. It also direct markets its own chickens and eggs, and it operates an egg-grading station too. Plus, Rick and his wife Janice are also in the beef business with a partner, and along with his mother, Donna, they re in the process of opening an on-farm store.

Clouston manages all these areas by financially dividing them with AgExpert software. Plus, he has also taken the next step, using the results to create ratios that guide his decisions.

With the right information base, Clouston says, it s much easier to benchmark and to make strategic business decisions, providing the information is organized into production divisions.

At 29 years old, Clouston started farming full-time when his father died unexpectedly. After a couple of rained-out grain years, he decided to expand into direct marketing meat and eggs. From the start, though, he recognized that he needed a way to track the profit and loss of each part of the operation and to manage his debt payments.

But it takes time. Rick spends a couple of hours a day in the office, marketing, doing paperwork, planning and crunching numbers. In the winter, that s more like five hours a day.

He also takes time to write down and allocate expenditures for shared assets. For example, Clouston keeps a log book in the tractor to track hours and the amount of fuel used in each operation. Similarly, he estimates his time and general labour for each division.

Most farmers associate direct costs like seed and fertilizer with their cost of production. However, to get a complete picture, indirect costs such as fuel, repairs, equipment depreciation, labour, utilities and rent also need to be stirred in.

Don t forget a share of the sales and general administration costs too, such as storage, freight, management fees and liability insurance.

Then of course there are debt management costs to allocate.

Only when all these costs are assigned to each income centre can a producer get a true picture of the operating margins for that specific product.

Clouston outputs monthly budgets on a spreadsheet to track the expenses for each part of his business, showing his overall cash position. That s a lifesaver, that spreadsheet, Clouston says. That way, nothing can get away on me. For example, if a big mortgage payment is coming up, he knows what he has to do to make that happen.

Allocating both direct and indirect expenses to each of the enterprises helps Clouston get a clear picture of his cost of production per unit. Since he s selling off-farm, setting price is a significant part of his marketing strategy. He can set his

About the author

Contributor

Maggie Van Camp is BDO national agriculture practice development lead, co-founder of Loft32 and CEO of Redcrest Farms Ltd.

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