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Service please

Are you keeping up with the level of business service your neighbours are getting from their accountants and advisors?

Country Guide compares notes with two insiders in Canada’s booming farm advisory sector. As they tell us, there’s a lot to keep up with.

There are two reasons why Canadian farmers are now using more business services than they did five or 10 years ago — and neither of them is going away any time soon.

First is simply the nature of today’s farms, says Eric Olson, farm business management consultant based at the Winnipeg office of accounting and advisory firm MNP.

Eric Olson. photo: Supplied

“Compared to years ago, even five years ago, Canadian farms are now generally much bigger and more complex,” Olson says. “With that complexity and scale, there is more of a need for strategic planning, having the right business structure, and so on.

“When my dad farmed, he could put the crops in, feed the pigs, do the calving with a part-time hired man, and if it got busy, he just worked harder and longer. Today’s farms have so many more moving parts.”

And as farm size and complexity have grown, so has the value of the farm business and its assets — land, machinery and so on, and to Olson, these bigger dollars mean that the potential profits from farming are bigger, and so are the risks.

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In short, it takes a different kind of management and different kinds of business advice and business services compared to the past, and the stakes are so much bigger.

“Farmers have traditionally been fiercely independent business people,” he says. “That’s definitely still the case… Yes, farmers will seek out help with their businesses, but they don’t want to become less independent in the process.”

More and more farmers know they now need to seek out help because it’s hard to manage the scale of their businesses by themselves, Olson says. Things are big, and complex, and they know they need to offset any gaps by using specialists like farm business managers or agronomists to do things they can’t do or that they don’t want to do, like creating financial forecasts.

It all adds up to a huge difference from the days not so long ago when farmers went to bookkeepers as often as to accountants, and the main driver was the need to get their taxes filed.

Mike Bossy agrees that the role of farmers, as well as farm accountants/advisors, has changed over the last few years in relation to managing Canadian farm businesses.

“Traditionally, accountants have been on the compliance side of farm financials,” says Bossy, advisor with Bossy Nagy Group (BNG) in southern Ontario. “In years past, farmers needed statements for the bank and Revenue Canada, and the accountants would do them, and the farmers looked at them as just something that had to be done and of no further use. The farm bookkeeping was not very important and it was put off.”

Now, Bossy says, to keep the farm business competitive (or even more salable, if a sale is planned), “you have to bring in what are called ‘better’ business practices, like a vision/mission statement, strategic planning that aligns with that vision, marketing, HR, optimal use of technology. Overall, it’s more sophisticated financial management.”

The trend is clear. While farmers will obviously need to continue building their skills and keeping up to date on the management of their businesses, the amount of help they will need to make decisions, identify risks, and to see what’s ahead will steadily grow.

It’s worth noting that only a minority of today’s farmers have sought the help of business advisors or consultants, even though almost all use accountants to prepare their books. Only 32 per cent of respondents in a recent Farm Management Council survey indicated they have sought an advisor’s help.

New services

Let’s take a look at some specific services that companies like MNP and BNG never offered to farmers five or 10 years ago, but are actively offering today to a growing farm client base.

Together, many specific services relate to farmers setting business goals, creating a strategic plan to reach those goals, and making sure progress is being made towards goal achievement.

“We help them nail down what’s the road map and how they will monitor that,” Bossy says. “And then, having an advisor like me helps push things forward. Farmers these days need to have that strategic business plan in place and have someone to check in with them to ensure follow-through. And when you go over the plan regularly, other things will often come up and those can make the business even better. We are actually trying to find and hire more advisors because the demand is growing.”

MNP is similar — Olson and his colleagues never used to hold regular meetings with farmer clients focused on creating and achieving strategic goals, but now it’s common. The facilitation of farmer peer groups is another service that MNP offers to farmers now, one they didn’t provide just five years ago.

“We currently meet with some farmer clients every month and some quarterly,” Olson says. “Five years ago, we were making a plan with some farmers in the spring and then we’d meet again in the fall. Now, more regular meetings are integrated into many farmer’s business operation. And we have doubled the number of farmer clients that we had five years ago.”

Olson says that an extra benefit of meeting with him regularly is that it gets his clients physically away from the farm and its day-to-day operation, and helps them to focus on the big picture. “Farmers are self-aware, yes, but they are like everyone else,” he says, “and they need someone like me to ask them questions and to add that element of discipline.”

How often he meets with farmers really depends, he says, on how many decisions they make and when. “Livestock farmers make a lot of decisions. With pork farming, pigs come to market every week and there are a lot of decisions that can change things quite a bit, so we meet monthly. I have another client with a long-term goal of growing the business so that all three children can make a good living from the farm. We also meet monthly to make sure things are on track with that, but we also go over short-term issues as well.”

Olson meets with grain producer clients quarterly to talk about new machinery that might be needed, how a different grain marketing strategy will work with the farm’s cash flow, how much profit will result from grain sales of a given price, coverages with Agri-Stability and more.

In regular meetings to set goals and monitor progress, Bossy also notes that farmers gain more awareness of their own thinking, which in turn contributes to business success. In his first meeting with a client, he asks things like “What opportunities do you see?” and “What keeps you up at night?” Over time, Bossy says, these become questions that they ask themselves regularly as well.

“I help them identify their strengths, which can have a huge impact on their business,” he says. “We think problems are about what and how, but just as important is who can do what. Everyone has unique abilities, and farmers need to know theirs. Once we have a better picture of that, I can then ask farmers how many hours did you work this year, and looking at their basic financial statement, figure out roughly their hourly wage. In some cases, they are doing tasks that they could hire someone to do at much less per hour. Or maybe there’s an opportunity to train someone else to do a particular task, to get some custom work done. We get paralyzed about ‘how’, and we only see obstacles and barriers, but we need to understand obstacles are the raw material to get to our goals.”

Comparison function

Regular meetings also allow farmers to understand where they “fit” in their industry, and this peer comparison can be extremely useful for farm business success.

“Farmers talk about production with their neighbours, but they don’t talk cost of production, the bottom line, very much at all,” says Bossy. “They rely on accounting/advisory firms to tell them how their financials compare with others, and where they need to improve. And once we have that, we can look at what short-term and long-term strategy should be used to get that improvement. Maybe they need to hire an agronomist to do better with cropping next year. Maybe we need to look at why labour costs are high and how they can be lowered.”

It’s becoming quite common for dairy farmers to submit their production costs to firms like BNG and MNP, which pool the information in databases. “So I can say to a client, in comparison to others in our database, your cost per litre of production is high,” says Bossy. “Maybe you need to go to your feed company and say feed is costing me too much, so what should I do differently? We identify that something isn’t right, and the next step is for farmers to go ask questions. It’s our job is to get people to ask more and better questions. You should never shy away if you’re in business from asking how a service provider sets your price.”

Check function

Having regular meetings with a business advisor also allows for an outside “check” on decisions. “A good example is the typical loan offer,” Bossy observes. “My experience is that farmers are so happy to get approval, they just sign it. They usually don’t understand how the lender arrived at their interest rate. They will sign condition letters without running it by their accountant or financial advisor, and now they need help with that. So we are always trying to teach clients more and more about what the bank requires and how banks make decisions, so that as we meet with them in future, they ask better questions. And they don’t sign anything without some joint analysis.”

A farmer client might also think he or she needs something, says Bossy, and they actually don’t need it, or they might need something else. “‘Should I lease or buy a tractor,’ they might ask, and I say, ‘Let’s back up. Why do you want a tractor?’ And they say, ‘Well, I want a write off,’ and then we look at why they think a write off is needed. And sometime in the future, they will come in and ask: ‘Should I lease or buy a tractor?’ and they already know I’m going to ask why they need a tractor, and they will explain how now, they actually need a tractor. So then we look at how to finance that correctly.”

Looking ahead

If services have changed in the past five to 10 years (as they have), should we also expect them to continue changing in the next five to 10?

For his part, Olson pinpoints two particular business management areas that farmers will be increasingly unable to handle on their own and will therefore need assistance with.

Olson says farmers will have an increasing amount of production information on their livestock and crops to manage, and it will therefore be increasingly important to decipher what’s important. A good tech provider will come in handy to make sure farmers are getting the data they can actually use to make better production decisions — and therefore have a positive impact on their business.

And, of course, as farm business size and complexity continues to increase, Olson says there will be more staff and more risk, and therefore more complex and different management systems will be needed. Relying on outside expertise will be a must.

In Bossy’s view, farmers will need much more help in the next few years with business-related health and safety training and also HR management. Farmers will need help recruiting (making their farm an attractive place to work and communicating those aspects to potential hires), hiring (how to do a good interview), managing and evaluating employees, and more.

Farmers will also need increasing help interpreting numbers and trends, says Bossy. “Farmers tend to focus on one or two numbers, and you have to look at many numbers,” he notes. “Increasingly, farmers won’t be able to tease out and find meaning in the right numbers. They will also need to have metrics in place so they can see on a regular basis whether they are reaching their goals.”

Bossy also believes databases will become a much more common business service being used by farmers. “We are likely going to offer some access to our dairy database to farmers who aren’t clients,” he reports. “They will have to be vetted and submit their numbers and they may have to make some changes in their accounting first.”

Farmers will also increasingly need cash-flow models, he says, something they don’t generally have but should.

Whatever your farm type or size, and the services you use now, it’s clear you will likely need more services going forward. Those farmers who explore what services might be useful are the ones whose farm businesses will improve.

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