Kids learn about production agriculture at their parents’ knees. They ride in the tractor cab when the crop goes in, they learn to identify weeds when they go along on scouting trips, and they soon get asked to help feed the calves or milk the cows.
Learning to become a farmer on the farm is as natural as growing up. Kids are sponges. They soak up everything they need to know — everything, that is, except financial knowledge.
Typically, financial matters are discussed behind closed doors, away from the ears of the kids, and as a result, farm kids often grow up with very poor financial-management skills.
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Inevitably, Mom and Dad then look one day at the kids and ask themselves, “Do they really have the financial skills to make it in today’s farming?”
It might be called a self-fulfilling prophecy.
If the next generation is going to take over, they’re going to need to understand financial statements and how to make decisions based on them, says John Anderson, an agri-business consultant with Collins Barrow LLP in Kingston, Ont.
Tomorrow’s farmers must have the ability to determine if there is any money in the direction they’re taking the farm, says Anderson.
Nor is Anderson alone. “It’s absolutely essential that they understand the financial picture,” says Reg Shandro, a certified agrologist and mediator in Lacombe, Alta. “A farmer’s competitive advantage is what’s in their skull.”
If we are counting on the farm to fund our retirement after transferring assets to the next generation, then it’s doubly important for the next generation to be good financial managers, adds Mike Bossy, a Certified Agricultural Farm Adviser and president of Bossy Nagy Geoffrey (BNG) of Tillsonburg, Ont. “You need to train your pension managers,” Bossy says.
It’s easy to understand why the production end of things gets more attention than the financial workings of the farm. When it comes to production, it’s often a matter of “Here’s how you do things,” says Jennifer Stevenson, business extension specialist with the Ontario ag ministry. “When it comes to financial management, there are no hard-and-fast rules that can be applied consistently, it comes down to judgment. Should I sell my crop now or store it? Should I buy fertilizer or wait and hope the price will come down?”
We also tend to gravitate to the things we enjoy the most, and on many farms, that won’t be the financial side of the business, says Bossy. Most farmers are excited about the hands-on aspects of farming, so it’s natural for the kids to gravitate towards working in the barn or doing tractor work.
Another problem is that the senior generation doesn’t always have a good understanding of the financial statements themselves, adds Shandro. Accountants often prepare financial statements for farmers but spend too little time explaining them, he says. As a result parents may be reluctant to discuss financial matters with the kids for fear they won’t be able to answer their questions.
However, we do our kids a disservice if we don’t give them a good foundation in the financial management aspects of the farm before they take over. “The senior part of the team must be prepared to share financial information with members of the junior team who are active in the business,” says Stevenson. “Joining in on conversations with accountants, bankers and other business associates is essential.”
Shandro cautions that kids need to be old enough to understand the value of money before doing so or they will likely zone out. He also warns that it’s critical to be aware of the source of the information and how that affects what’s said.
Accountants speak from a taxation angle and while bankers will have “real life” information, it’s important to remember the banker’s job is to lend money. Parents would be wise to give their own interpretation of the information afterwards.
And of course there’s also the matter of confidentiality to consider.
If you have a good relationship with your banker or accountant you could ask them to participate in a special session to explain the farm’s financial statements. “I’d ask them during a non-busy time and give them some time to prepare ahead of time,” suggests Terry Betker, president of Backswath Management in Winnipeg. He recommends starting with the Income Statement so the kids can get an understanding of inputs, expenses, and gross margins.
“Too much information and you’ll lose them,” Betker says.
It’s important to remember that kids will absorb not just what’s said around the kitchen table but also how it’s said. In particular, Bossy recommends paying attention to how we talk about financial management. If we’re negative about having to “do the books” or meet with the accountant, the next generation will pick up on that and also have negative attitudes about these tasks.
Talking about the history of the farm is another way to pass on management experience, says Betker. “Talk about what has gone well as well as some of the challenges,” he suggests.
Also consider giving the younger generation exposure to financial management by carving out a chunk of the business and allowing them to manage it, suggests Stevenson. For example, if your son or daughter is interested in growing a new crop, have them make a business plan with cost projections and revenue expectations, an agronomic plan, a human resources plan and a marketing plan before you give them the land, says Stevenson. “The key is to identify specific and achievable targets,” she says. “Afterwards you should discuss what worked and what didn’t.”
Shandro suggests having youth raise chickens for the summer or grow a few acres of a crop where they are responsible for all aspects of production.
Create a simple worksheet so they get the concept of what it costs to raise a steer or grow an acre of pinto beans, adds Anderson.
Betker cautions parents not to let the child keep all the profits though. “To create a realistic financial picture, some of that money should go to cover capital costs such as the cost of the land,” he emphasizes.
Or have them compare the financial implications of buying fertilizer in the fall versus the spring, suggests Anderson.
Yet the best learning experiences may actually come from time spent away from the farm. Shandro recommends that the next generation should spend three to five years working somewhere else before committing to the farm.
“Those who work in banking or accounting will be well prepared for a career in farming,” Shandro says.
Bossy likes the 3/2/1 model. Before returning to the farm, he says, the next generation needs three years of post-secondary education, two years of working for someone else, and one good idea.
Things are starting to change. Talking about money is no longer offlimits. Bossy says that five years ago if he had asked a group of young people who were in the process of taking over the family farm if they had seen the farm books, only 20 per cent would have said yes.
At a recent meeting, that number had shot up to 80 per cent. That, he says, is good news for agriculture. CG
