When the planets align, life on the farm can be very rewarding, like when your weather is perfect at the same time that there are production shortfalls in other parts of the world and you can price into market highs.
There are other alignments, however, that are much more within your control when you are managing your farm business, including business direction, financial performance and management structure.
In a way, these factors have impacted farm business performance for decades, but as farms grow in size and complexity, it is increasingly important that we understand them better, and that we monitor them as the farm business moves through its life cycle.
This alignment consideration is really about strategic direction. Farms and farm families should have written vision statements that provide longer-term direction. A vision is the foundation of your future: what you want your farm business to become.
Technically, a vision statement should be a little cloudy and grand. Practically (which I find most farm families prefer) it should describe where you see your farm business five years from now. It is not set in stone. The vision will evolve over time as situations and circumstances change. It represents the direction of the business or where the business is headed. It becomes the road map — the “you can’t get there if you don’t know where you’re headed” reality.
All businesses, including your farm, are tracking somewhere financially. They have an existing financial direction. For most farmers, this is a reactive function meaning that the financial position in the future — say five years from now — will be an outcome of what will happen over that time frame.
The preferred approach is to define what you want, or need, your financial position to be. Then determine what can and needs to be done to achieve it. Think of it as creating your financial vision. It should include financial targets and investment guidelines. How do you know if you are tracking to where you want to be financially if you haven’t defined the goal?
Logically, there should be a significant degree of alignment between a business vision and a financial vision. I find myself in discussions with farm families where there sometimes is a disconnect between their ideas of where they want their farm to be in the future and their ability to get there financially. Having a dream and then realizing after a time that you can’t afford it can be discouraging. It’s like setting out on a trip and partway along the journey, finding out that you don’t have enough gas. It can cause frustration, add stress and result in hard feelings. Alternatively, financial clarity can have a positive impact on the business and family.
Your farm’s management structure becomes more complex as your business grows, especially if there are intergenerational transitions. The basic management functions on a farm are the same, but what’s involved in attending to those functions has changed and is changing. For many farms, this is a new reality.
Simply stated, what does the management structure of your farm need to look like five years from now so the farm’s management will be appropriately aligned with your financial and business vision? Putting some structure around the management functions on a farm can yield powerful results, but it doesn’t have to be a complex exercise.
Start by drawing an organizational chart that best represents how your business is currently being managed. Determine who has responsibility for operations, marketing, financial and human resource management. Next, define what the tasks are in each of those management areas.
Then, repeat the process for what you think will be required from a management structure perspective five years from now, both in terms of the tasks and the responsibilities in order to define what your management structure should look like in the future. The process then is to begin to work towards it.
Three key alignments are required:
- Creating your business and family vision.
- Putting definition around your farm’s financial future.
- Developing a management structure that reflects the current reality and future requirements.
Once completed, you’ll be able to monitor the alignment and make the adjustments that will be required to keep them aligned.
Terry Betker is a farm management consultant based in Winnipeg, Man. He can be reached at 204-782-8200 or [email protected]. He is an instructor with Agri-Food Management Excellence’s CTEAM program.