Farmers across Canada are doing their very best to integrate business practices into their farming operations. They understand that maximizing the success of a farm business takes more than production excellence. But what business practices should they make standard, and why?
Let’s first look at where farmers have started from, based on a study called “Dollars and Sense,” which measures the tangible impacts of beneficial business practices on Canadian farms. In this study, Farm Management Canada (FMC) staff pinpoint several practices that are effective drivers of financial success. They are, in order of priority, a commitment to continual learning, making business decisions based on accurate financial data, use of professional business advisors, use of a formal business plan, cost-of-production monitoring, risk assessment and management, and use of a financial plan with budget objectives.
While FMC program manager Mathieu Lipari notes that whereas some of these used to be adopted by only a small part of the farming population, most industry watchers agree that their use is increasing. He adds that although there are very few standard business practices in the ag sector at present, it would be beneficial for farmers to prioritize the adoption of the more basic ones, like having a written business plan or using professional business advisors. “It’s difficult to see how the newer, more innovative, business practices can become standard without them,” he explains.
For a cutting-edge list of top farm business practices, Country Guide did a sort of study of its own to find out what business practices are getting adopted fastest on the farm. In addition to continuous learning and the other basics, here are the top eight:
1. Assign responsibilities
In the view of Stan MacEwen, a senior associate at Laskowski Wright accounting firm in Saskatchewan, smart farmers are now spending more time managing their farm businesses and taking more of a team approach as needed. “The better operators use members of their operation to look after different parts of the operation, and hire outside help where expertise is needed,” MacEwen says. “They will split responsibilities up, like have someone look after marketing their commodities, another look after equipment, a third co-ordinate field operations, and a fourth do or oversee financial management, dealing with bankers, accountants and so on.”
2. Monitor financials
Another growing practice is looking at financial information routinely to stay on top of changes in working capital and to make sure there is cash in place when needed. A decade ago, farmers might do an annual cash-flow plan and check it a couple of times a year. Now it’s at least monthly, and on more farms it’s becoming practically continuous.
3. Choose the right professionals
You’ve likely heard many times that smart farmers now assemble a team of experts as a standard practice. But for many, the real goal is in making fuller use of the team. “Smart farmers now go above the basics and are using their professionals in a more integrated way,” notes Thomas Blonde, a partner at Baker Tilly GWD accounting firm who is based in the firm’s office in Elora, Ont. “It’s important to use these people fully to bounce ideas off of them and much more.”
In the same vein, MacEwen says smart farmers spend more time talking things over with their advisory team members as a matter of course. “Communicating and building strong relationships is what the best farm managers are doing,” he says. “They communicate with the bankers to make sure everyone is on side with the need for financing well in advance. They communicate with their insurance advisor when changes are made, because being either over- or underinsured can be costly. They review their financial statements with their accountant to understand what trends are showing up and possible solutions.”
4. Use financial technology
It’s now becoming standard for more successful farmers to use new technology to manage finances, Blonde says. An example would be cloud-based accounting software platforms that allow access to records wherever there is internet and which automatically back up the data. These programs also enable farmers to automatically download and reconcile bank and credit card transactions. In addition, farmers can take pictures or scan documents and file them within the program so that it’s very quick to access them in the future when needed.
5. Better farm meetings
Regular farm business meetings focused on challenges, opportunities and progress towards business goals are becoming standard, but a new wrinkle is holding quarterly strategic farm business meetings with all family members present, according to Len Davies, owner of Davies Legacy Planning Group in Ontario. These meetings are separate from the regular meetings you should be having with your farm business advisory team of professionals, such as your accountant and banker.
However, you must run these meetings correctly. A specific person (Davies calls this “the meeting champion”) should be responsible for setting the date for the quarterly family business meeting, gathering agenda items and circulating the final agenda before the meeting.
The actual meetings should be run (chaired) by a member of the next generation, in Davies’ view, not a person who has been running the farm for decades. “It’s important to build leadership skills in younger members of the family,” he says. “It’s important that offspring step up and be able to explain how a new idea will work.”
However, sometimes things are so tense in some farm families that an outside chair is needed. “I’ve had requests for this and sometimes it’s the best way to go, at least for a few months,” says Davies. “It has to be someone who knows how to structure a meeting and has no bias.”
6. Proper governance
According to Davies, it’s also becoming a standard practice in smart farming families to formalize everything to do with the farm business, transitioning to full governance structures. “If you haven’t instituted standard operating procedures for everything, who gets how many holidays and when, deciding who pays for things like life insurance, and that the use of farm vehicles and other resources are all equalized (transparent), you are going to face ongoing issues that will take up time and energy,” he says. “These things can be a huge source of tension — unnecessary tension. The farm business has to be run like a business. There needs to be rules and guidelines for everything.”
7. The right salary
Compensation is getting a more realistic look on an increasing number of farms. “Maybe salaries are equal for various members of the family, but very often, they shouldn’t be,” says Davies. “There should be job descriptions created with appropriate compensation according to the responsibilities of that job. Yes, co-owners of the farm business should equally share in the profits but salaries often should be different. And maybe one sibling takes the time to take courses and the other doesn’t, for example. That also needs to be addressed. All of it needs to be worked out.”
8. Taking care of yourself
Last, the new norm is taking care of one’s mental health. It’s becoming standard for smart farmers to go to therapy to protect their health, says Davies, but also to protect their farm businesses. “If you don’t go to therapy and you need to, your farm business will suffer,” he explains. “Going to a therapist was unheard of when I started doing transition planning, and today I see it quite frequently due to the sizes of the farm businesses.”
Davies thinks it’s “much smarter” to go talk to a therapist to get clarity about what is bothering you about the farm business and what to do about it than to struggle with an issue for 10 or 20 years. “People let things fester and they need to learn to communicate better,” he says. “You also might be an older member of a farming generation who needs to work through how to let go of leadership, how to step back and transition from leading the business to giving strategic guidance to the new leaders of the business, the next generation.”
MacEwen’s view is similar, in that he believes taking time for self and family is likely the most important practice that a farmer can do to ensure the success of the farm business. “More of the better operators are now taking time to get away from their operations,” he says. “This helps reduce stress and improve family relationships. A time away usually helps give a better perspective.”
In a final thought, Lipari points out that one thing is certain with regard to farm business practices becoming standard in 2020 and beyond: there must be a clearly demonstrated return on investment to each of them for them to be adopted. “That is to say,” Lipari says, “they provide a clear and demonstrated value, in terms of profitability, productivity, time-saving, better retention of employees, reduced stress and so on.”
A final word: Let us know what is working for you. If you have a story about how a standard practice you have recently implemented has demonstrated its value to your farm business, please email us at [email protected]. It’s important for all of us to keep up with the pace of change in today’s agriculture.