Your Reading List

How to know if your farm business skills are keeping up

In the last five years, every farm has upped its business management. So is your farm middle-of-the-pack? Above average? Below? Get ready for some surprises

When you ask Shawn Hass, vice-president and portfolio manager at RBC Dominion Securities in Lethbridge, Alta., what his cutting-edge farm clients are doing that sets them apart from the rest of the pack, his first answer will likely surprise you.

Shawn Hass. photo: Supplied

“They’ve built an office or have one on site,” Hass says. “The most successful farm operations actually have a formal farm office.”

Why should that matter? A farm office can’t be the only or even the main reason for their farm success. After all, farmers still have to excel at production in the barn and in the field.

Yet whether the farm is large or small, an office often does accompany success for the very good reason that it’s a sign of professionalization.

And that’s important because attitude really does make a difference.

There’s probably never been a year when it’s so pertinent, in fact. And not because of the COVID-19 pandemic. Instead, there may never have been a time when it’s quite so hard to know exactly how your business management skills are keeping up with the rest of the industry.

Related Articles

In 2020, Farm Management Canada published an update to their 2015 survey called Dollars and Sense, which measured whether the adoption of business management practices on farms across the country had any impact on their level of success.

The original study found that Canada’s most successful farmers are keen financial managers themselves, and they are also more likely to consult with expert advisors.

That’s what the 2020 update found too when it surveyed an impressive 700 farms.

But it found another, more surprising and more troubling trend. It found that the rate of adoption of business management practices — for example, the ability to read and use financial statements — has actually gone down across categories in the last five years.

So Country Guide wanted to know: Is that what farm advisors are seeing in the field? Do the survey results align with their farm clients?

To answer these questions, we spoke with five farm advisors across Canada.

And we also wanted to know, what are their shrewdest and savviest clients doing that has the potential to put some distance between themselves and the practice’s other clients?

Their answers were nuanced but unanimous: Most farmers apply the principle that “what you can measure, you can manage” when it comes to farm business.

Let’s go back to Shawn Hass, who says the farmers he sees are not only becoming more proficient farm managers, they’re “moving by leaps and bounds.”

“I don’t see any of my farm clients becoming less educated,” he says. “They’ve come an incredible distance in the last 10 years.”

Do they have offices? “Bringing formality to things will sometimes scare off my ag clients,” Hass says. After all, sitting behind a desk — or even having a desk to sit behind — is rarely part of the dream that gets anyone into farming in the first place, and it can also push any of us out of our comfort zones. Suddenly you aren’t just catching up with email on the fly, or pondering the possibilities while you’re driving combine. Now, you’re finding you’re asking yourself to spend actual time on actual office-type jobs with expectations.

When farmers hesitate, they aren’t alone, but it’s probably time to recognize that more of their neighbours are digging in and getting started. And because the neighbours are starting on the strategies described below, they’ll already be seeing the benefits, which Hass says start flowing quite quickly.

They also see the goal. For Hass, getting formal doesn’t mean showing up every day in a tie or skirt. Few of his farm clients have built offices with board tables and water coolers. “There’s no sense in overbuilding formality in areas they don’t have to,” Haas says.

Instead, it means being open to a whole suite of business management strategies, from creating human resources plans to assembling advisory boards and peer groups.

I asked Hass and four other farm advisors across Canada what three strategies farmers should adopt to ensure they’re picking up on the newest, most successful trends in financial and business management.

As you’ll read below, the advisors we spoke to identified a series of key areas where farmers continue to professionalize their businesses:

Insisting on answers

Maybe both sides are right. Maybe there are some management tools that farmers aren’t as skilled at using now as they were five years ago, for the understandable reason that they’re paying someone else to do it.

They’re insisting on answers, but they’re going to the pros to get them.

Kathy Byvelds, a CPA for Baker Tilly in Winchester, Ont., believes farmers’ financial literacy hasn’t necessarily improved, but isn’t regressing. More clear, however, is that over the last five to 10 years, she’s seen a greater willingness in farmers to work with farm advisors, particularly in the areas of farm transition and succession planning.

Mike Menzi, a business development manager for FCC in Ontario’s Huron-Perth county, agrees.

“I would say you see more people making sure they’re bringing in the right people, partnering with them and running decisions by them from a tax standpoint, and trying to work with the experts they have to understand the situation and the impacts moving forward,” he says.

Willingness to bring in advisors is a matter of degree, and can be more a function of farm size than an indictment of farmers’ failure to professionalize. Kelly Bromm, a manager at MNC in Saskatoon, says he sees a broad range in his clients’ financial literacy. The larger the farm, he says, the more necessary it is for farmers to lean on a team of advisors — and to ask good questions of those advisors.

Kelly Bromm. photo: Supplied

“Many producers that work with me start out with little financial literacy but understand that it is important. They understand that they are involved in a business that is worth millions of dollars, sees constantly increasing costs, and can see multiple periods of low margins before they hit that ‘home run’ year where all the stars line up so that they produce a fantastic crop and get good prices too,” he says.

Bromm adds that banks mitigate risk by pursuing and working with clients who have good financial literacy.

But some of Bromm’s clients simply don’t have the time to focus on the financials, and in some cases bring in a farm advisor in “almost a CFO capacity” so they can focus energy on day-to-day operations.

“In general I would say that in the producers I come across in our accounting firm, financial literacy is improving or at least they understand the importance of it and the need to surround themselves with a team that can support them,” he says.

Hass adds that as farm sizes grow, farmers are becoming better delegators, which might account for an apparent “stall” in the rate of adoption of business management practices.

Key performance indicators

As tech and data collection improve, it’s easier to look at the details and measure key performance indicators (KPIs). In ag, this means tracking the use of resources like inputs, such as chemical and feed, and evaluating production potential (litres per cow, bushels per acre) plus using ratios and other analytical tools to monitor and assess financial performance.

“Looking at KPIs is of huge value. It speaks to efficiencies. The manufacturers follow the lean style and that’s coming to the farm,” says Hass.

“If you can get a little more margin, some years that makes all the difference.”

In fact, Hass facilitates an industry peer group of five farms who put a full-time employee on the payroll to track KPIs for all five farms. But he’s also seen farms hire someone on an hourly basis to stay on top of margins.

“That’s a benefit of COVID-19,” he says. “I don’t think anybody’s locked into a traditional work format.”

Menzi says farmers are tracking KPIs across industries. “Whether you’re in cropping, dairy, hogs, poultry, it’s a focus for sure, and on the financial side we try to help out with this,” he says.

“Most farmers make a point of identifying KPIs and where those indicators need to get to to take that next step. That aside, we always try to offer that. Time-wise, a producer wears many hats and that’s the biggest limiting factor for them,” he says.

Hass says that on a basic level producers need to figure out ways they can come up with comparisons on their own operations, and then take those numbers to specialized advisors who can tell them if, say, their chemical costs are higher than they should be for the size of operation.

Good farm management always comes back to the use of farm advisors. Menzi says top clients are all open to new ways of doing things. The limiting factor is usually time.

It’s difficult to juggle all of a farm’s demands, and impossible to be great at everything. That’s where farm advisors come in.

“The top producers are always looking at ways to improve, strive, develop their acumen and develop profitability,” Menzi says. “You have others who are slower adopters but they do look to learn. It comes down to capacity — larger producers have more help, and if you have a smaller operation the people involved typically are busy doing the day-to-day work.

“I would say we see some operations where farmers may acknowledge bookkeeping isn’t their strength and they have an accountant come in to do the books and debrief afterward. That can be an advantage, because the farmer then can focus on the things they enjoy doing more.”

While it’s a growing trend, many farmers haven’t made the step of bringing in farm advisors. Hass says introducing a level of formality to farm operations can be a tough but necessary step, and this is when farm advisors should offer structure without rigidity — and relax their expectations.

“I’m a big believer in the 80/20 principle, which says 20 per cent of farmers will be at that leading edge, trying new practices, but that’s only 20 per cent. I think we try to make the other 80 into the other 20 and that’s kind of unrealistic. If we can give them what we need in that space, that’s a better way of approaching it.

“We don’t have to change the world in one or two meetings — just take some baby steps,” he adds. “If we can look at three things over a couple of years, I’m happy.”

Farm data

Hass says advances in technology and data collection have resulted in more resources for farmers to draw on to improve their business.

He’s seen increasing willingness to share farm data with trusted farm advisors and even specially structured peer groups where five or seven producers help each other identify areas in need of improvement.

“These are progressive younger operators that feel the value they get out of being candid and open far outweighs the risk of sharing farm data,” Haas says. “In agriculture, competition is not necessarily what a lot of farmers view it as. If you have an efficient year, I don’t think those five farms are going to influence the industry that much that it would be to the negative,” he says — adding the caveat that this doesn’t always apply to niche markets.

Looking for what’s measurable

Rick Gendemann, a CPA and partner at Manning Elliott in B.C.’s Fraser Valley, says he doesn’t necessarily see farmers reading and understanding financial statements, for example, but he does see them increasingly embrace the notion that what is measurable is manageable. As tech and data collection and management improve, it makes more specific and detailed reporting systems possible, looking both at internal as well as at external financial perspectives.

“We’re beginning to understand the sort of things that do have an impact on the bottom line. What are those four or five things that I have to hinge my operation around?” says Gendemann.

Fraser Valley farms predominantly produce dairy, feathers and eggs, which are sold via marketing boards, making it a little different than the rest of Canada. In order to enhance market share, farmers have to buy quota, Gendemann says, and demonstrating efficiency doesn’t necessarily translate to better value. But even under this system there are opportunities for farmers to improve their position, and that starts with keeping up with industry trends.

Menzi says technology has improved data management on multiple levels on the farm, from tractors that monitor inputs in the field to accounting software in the farm office. “More and more you see adoption of technology,” he says. “The tech is helping farmers move forward.”

Technology offers farming useful tools, but doesn’t ensure success, and the most successful farmers have the strategic chops to analyze farm data and see the farm through tough seasons.

Hass says younger farmers are quicker adopters of new technology but aren’t necessarily better critical thinkers than their older colleagues.

“Technology can almost rob you of traditional strategic skills, penciling out your strategy and thinking about your operation,” Hass says. “The older generation is still better at that, and they need to continue to mentor the younger generation that’s more book-smart.”

About the author

Contributor

Julienne Isaacs

Julienne Isaacs is a Winnipeg-based freelance writer and editor. Contact her at julienn[email protected]

Comments

explore

Stories from our other publications