“With the right support, qualified primary producers have the potential to continue to contribute to the resiliency, diversity and innovation of Canadian agriculture despite temporary financial disruptions in their operations,” said FCC Capital executive vice-president of investment in a news release.

Glengarry Farm Finance primarily works with farmers who can’t get loans from ordinary lenders due to temporary credit issues. It works with farmers in Ontario and Western Canada.

FCC promised up to $60 million to increase Glengarry’s lending capacity.

“This new partnership with FCC puts us in the unique position of being able to offer a more comprehensive set of financing solutions to give farmers the support they need to work their way back to bankability,” said Glengarry CEO Greg Kalil.

The post Farm Credit Canada funds alternative lending company appeared first on Country Guide.

Today’s farm operations are growing ever more complex. There are crucial production, financial, human resource, marketing and other management decisions to be made, and it is impossible for farmers to be expert in every facet of the business.

Enter farm business advisors.

Hiring advisors and consultants isn’t a new concept, as farmers have outsourced accounting and legal management for years. But now, the range of available specialists is wide and some of their practices are far from traditional.

According to research from Farm Management Canada, farmers who routinely work with business advisors are significantly more likely to regularly and consistently implement business management practices. These include using a written business plan with a clear vision and future goals, and reading and analyzing financial statements.

Trish Fournier is a business advisor who set up her own firm — South Coast Advisory Solutions — nearly two years ago. When small or medium-sized businesses have sophisticated needs but it is not practical for them to hire full-time executives, she has a creative solution.

Fournier becomes part of the farm’s team, taking on roles as a CFO-for-hire or a strategic advisor or management coach for as long as she’s needed.

A new kind of advisor

Fournier worked as financial manager and then CEO of Lake Erie Farms for 20 years until the company exited the industry in 2019. Compared to most farms, the structure of this tobacco and greenhouse business was unique — it was family-owned but not owner-operated.

“The business had transitioned down through multiple generations and the family was spread out in three different countries so they went the route of hiring people to manage the company,” says Fournier.

Throughout her career, she saw many benefits to having a formal board of directors and staff management team working together.

“Having different perspectives and a range of skill sets on an ongoing basis was beneficial for Lake Erie Farms,” she explains. “I worked with different growers in the tobacco and greenhouse sectors and we made a really good team. Whether it was a problem or opportunity, I would come at things from a completely different angle than they would, and it would get them thinking outside the box. We always ended up with better results than any of us could have come up with on our own.”

When word got out that Lake Erie Farms was winding down and Fournier was selling off divisions of the company, she started to receive queries about her next move.

“It got me thinking that there is a real need in small business — particularly in agriculture — to have someone who can become part of the management team, more so than your traditional advisor.”

She knew it wasn’t practical for most farms to hire executive managers full-time but wanted others to experience the benefits of doing so. That’s when the vision of her new role came to her —businesses could bring experience and new skills to their teams if they could hire an executive and share that person’s time.

Traditional farm advisors typically meet with clients annually and often review historical data, while traditional business consultants typically follow a template with a set number of meetings and a report presentation. But Fournier’s model is not one-size-fits-all. “I’m more looking to become an ongoing team member.”

She currently works two days per week as a CFO-for-hire for one farm client. She meets with others as a strategic advisor or management coach on a weekly, bi-weekly or monthly basis, depending on their needs.

Business planning is key

Fournier sees formal business planning as the key to optimizing daily management decisions and laying the groundwork for future growth. Writing a superb plan also attracts investors and instills confidence in banks and lenders, she adds.

As farms grow in size and management complexity, farmers are pulled in many directions and often in areas they are lacking skills and comfort in.

“Farmers really want to spend time doing what they are passionate about and consequently those areas tend to be where they can have the most impact,” explains Fournier. “But when they get pulled away or stuck in the details, they’re not able to think about the business from a strategic point of view or use analytic tools to manage smarter.”

By injecting time into the business planning process and writing a formal plan, farmers are forced to think beyond the here and now and focus on what they envision success to look like.

“By looking at strengths, weaknesses, opportunities and threats in a very deliberate way, it helps create a strategy. Once you have that, you can break it down into smaller pieces and create an action plan,” Fournier says.

When a solid business plan is in place, farmers can better prioritize business activities and better communicate with people about their business, and they are more confident in decision making. Living out an annual business plan and using it to assess performance also improves family harmony and reduces stress.

How advisors can help

If business planning is new to you and your business, there is no shame in asking an advisor to guide you through the process. “Like all new things, it might be outside your comfort zone to start but management advisors are experienced in doing this with many other businesses. We know what questions to ask and what tools to use,” says Fournier.

If you already have a business planning practice, advisors like Fournier can support the implementation of your plan and help to hold managers accountable moving forward.

Advisors can also bring skill sets to the table that may not be represented on your internal management team. Fournier specifically sees a need for this in family-run businesses. “Family farms are especially disadvantaged by being isolated and often that means the people involved are looking at things similarly.”

In terms of financial management, for example, farmers may only be reviewing financial statements at the end of the year. Through what she calls the “digging deeper component,” Fournier would advise combining interim field and operational data with annual financial ratios to analyze trends. When you do that on a timely basis, you can make production decisions and see the financial difference they make. You can learn a lot from the data, make adjustments and become more efficient, she says.

Fournier is used to being the outside perspective challenging the status quo. But time and time again, she has seen new ideas spark more creative thinking and ultimately better business solutions.

“If you’ve got a management team where everyone respects each other and their different skill sets, you’re going to have a lot more diversity and be stronger as a whole.”

Adding to the team

So, is Fournier’s advisory model working in agriculture? Well, Ryan Schuyler of Schuyler Farms thinks so.

He and his brother Brett are the next generation of managers in their family’s business of producing apples, sour cherries, corn, soybeans and sheep near Simcoe, Ont. They joined their father and uncle in the farm corporation 10 years ago.

The brothers have since led the business through significant growth, including an amalgamation that added 800 acres of orchard and a cherry processing facility to the operation overnight.

But notable expansion usually brings new management challenges. As the business became more complex, the Schuyler brothers recognized the need to expand their management structure by adjusting current responsibilities and adding new roles.

After seeing the success of Lake Erie Farms, they added Fournier to their team to advise them through their management transition. Although the Schuylers were already using a written business plan when they initially met, they have further developed it together.

To Schuyler, planning is essential to success in agriculture. “If we didn’t have a business plan, we would just keep doing things because they have always been done. The business is evolving too quickly to just put your head down and farm,” he says. “We have to be constantly looking at what we can do differently and to figure that out, we have to have someone sitting back and analyzing our operation.”

Why consider a senior management advisor?

Trish Fournier, South Coast Advisory Solutions, shares 10 ways a senior management advisor can add value to your small or medium-sized business:

1. Expert advice: Day-to-day access to experience-based advice leads to more informed management decisions. It also broadens your business network, which can help you identify new opportunities and ideas.
2. Expert analysis and real-time management reporting: Receiving accurate and reliable financial information in a timely manner provides an ongoing analysis of business strengths and weaknesses and allows you to adapt in real time.
3. Strategic clarity: A well-developed company strategy — including a vision, mission and values — frames the future of your business and aligns your actions with your goals.
4. Growth: Developing your business through improved planning, performance and productivity means sustainable growth based on sound business fundamentals.
5. Risk management: New insights prepare your business for upcoming shifts in the industry and help to minimize operational risk while significantly reducing uncertainty.
6. Profits: Improving sales, minimizing costs, streamlining operations and controlling inventory, payroll and other factors lead to increased profitability and improved liquidity.
7. Systems and processes: Putting systems in place to optimize staffing and reduce errors gives leaders the confidence to delegate tasks or be able to take a holiday.
8. Communications: Superior results come from good communication, including strong collaboration and conflict resolution.
9. Team building: Ensuring the right people are on the right team in the right roles is key to success. Mentorship is crucial to developing  the skills of key employees and future leaders.
10. Personal health: Improved time management and greater productivity reduces stress and anxiety while bettering your overall work-life balance, both physically and mentally.

– This article was originally published in the March 2, 2021 issue of Country Guide.

The post Summer Series: Building a better farm business appeared first on Country Guide.

Kent had grown up nearby on a Prince Edward Island dairy and hog farm, but in the early 1980s had decided to farm alongside his wife’s father, Allison Dennis, on their 3,200-acre potato and grain operation near Arlington, not far from Summerside.

Although there was never any written transition plan, as the years went by, everyone in the family generally accepted that when his father-in-law eventually retired, Kent would take over.

So when Kent died at the age of 33, everything seemed up in the air. “It changed our grandfather’s mindset,” says Bryan, now 37. “He didn’t have a son-in-law on the farm anymore, and when you look at your grandkids at the ages of eight and 10, it’s hard to know whether you’re looking at farmers or not.

“He didn’t know what was going to happen to the farm, he just knew that he had to keep farming.”

Bleak, bleak, bleak

The boys grew up helping out on the farm until they graduated high school and went to college, Bryan taking business administration at the local community college, and Kyle taking a precision machining program, both with hopes and dreams of returning to the farm.

But whenever they raised the idea of coming back to farm with their grandfather, he strongly discouraged them.

“All of my life, every time that I would bring up farming as a future, I was told that was not a smart thing to do, that I should get off the farm, go get something more secure, farming isn’t an easy life, etc.” says Bryan. “Transition was never a conversation that was openly discussed because nobody in the family thought there was a future at the farm for Kyle and for me, and that made us second guess whether we had a future here.”

In Kyle’s case, Dennis told him he would prefer to see him continue after college in the trades rather than return to the farm. “He’d had a rough life on the farm and he didn’t think there was much of a career there for both of us, so I went on to get my red seal certificate and got a job with an aerospace company, where I worked for almost 10 years,” says Kyle.

Bryan did come back and work full-time on the farm after college, and was still working there when his grandfather began wrestling with dementia. This also raised the spectre of farm transition, something no-one had yet planned or prepared for.

“As far as a succession plan here, there was none,” says Bryan. “I worked 10 years here after school with my grandfather for a paycheque at the end of the week. There was no sweat equity, there were no shares in the farm that I was working towards buying, it was just a job.”

No plan, no money

Something had to happen, and, as has happened on so many farms across Canada (and still happens) the family was left trying to sort out their next steps.

“It was brought up to all the family members that if they were interested in farming, speak now because it was going to be sold,” says Kyle.

“Bryan and I were both interested in it, so we decided to try and see what we could do.”

That got a lukewarm response at first. Again, it’s a familiar story. The family members simply didn’t think the brothers would be able to raise the money to purchase the farm.

It’s how their grandfather had always talked. “He was running the operation with an adequate cash flow and not a lot of debt,” says Kyle. “He’d always said there was a generation missing on the farm, so it was going to have to go to his six kids and they were likely going to sell it… he didn’t think we could afford to run the farm if we had to assume that much debt.”

The family struggled to see how Bryan and Kyle would find a bank willing to back them. “It was a large ask,” Kyle agrees. “We were turned down a few times.

“But luckily, we had one bank that was willing to finance the purchase and another one willing to give us an operating loan. When we went to the family and said we have somebody to lend us money, it got a lot more serious. They’ll say to this day they still can’t believe that we were able to do it.”

The right alignment

It had helped that they had a small 20-acre parcel that their mother, Brenda, had gifted to them when their dad passed away, so they at least had a little collateral to start with. And a few other things lined up too, like the experience they already had on the farm, and that they had a secure, dependable market for their main crop.

Their grandfather had sold all of his potatoes to one local processor and had developed a strong relationship there. When the processor agreed to write a letter for the brothers committing to purchase all of their potato production, it was a major turning point with the banks.

“It definitely helped when the banks knew that essentially this was a changing of the guard. This farm was going to continue doing the same thing it was always good at doing, which was growing potatoes, and it was going to sell them to the same customer it had always sold to,” says Kyle.

Really, says Bryan, the banks were justified in emphasizing that idea of continuity.

“I don’t think Kyle and I could be as successful as we are today without those years of experience,” says Bryan. “There are many agronomy and biology courses, and tools out there that will help you become a more educated farmer and you definitely need to broaden your horizon and take as many of those courses as you can. But the time spent on the farm working for minimum wage when you’re 15 years old is probably the most valuable time that you will ever spend. You don’t know it at the time, and you complain about the hard work, the long hours and the minimal pay, but once you get into the captain’s chair, you’ll refer back to your knowledge learned in those years almost every waking moment.”

Six months to get it done

Once the family knew they were serious and could get the financing, the transition process began. It was rough and fast.

“This happened after the fall of 2014 and the sale went through in February of 2015, so we had to get all of our ducks in a row in five or six months,” says Kyle.

Because the family had already had the farm appraised, they had a price tag on every piece of land, building and piece of equipment, which meant Bryan and Kyle had to try and figure out what they could afford to purchase. It was a situation that could have caused a lot of acrimony, but everyone approached the transition on a professional basis, something that is good advice for anyone negotiating a family farm transition to remember. “When you went into the negotiating table, you put your business hat on and forgot about everyone having the same last name,” says Bryan.

In the end, the brothers bought just shy of three quarters of the farm, renaming their new farm business partnership FarmBoys Inc. “We agreed to not just cherry pick the best land, but drew a circle around the farm and bought everything inside that circle, so we got a little bit of a discount because of that,” says Kyle. “The family is still very close and our aunt did a good job of making sure that the sale was kept separate from family matters. It was a business deal.”

In order to get the financing, they had to prepare cash-flow statements and projections for the first three to five years, but that was relatively easy to do once they had access to their grandfather’s historical financial information and the certainty of stable markets and revenue. Of course, nothing in farming is ever certain, and all sorts of factors can cause a drop in revenue or costs to rise, so they did manage to negotiate some ways to manage a portion of their risk.

“We had options for our first couple of years that we could do interest-only payments on our debt if times were tough, so that allowed us a bit more flexibility with the cash flow if the crop was bad,” says Kyle. “We were lucky that we had a good crop in our first year, but if it had been poor, we had options to help soften the blow.”

Mistakes to not repeat

Looking back on it, the transition worked but it certainly wouldn’t be the way the brothers would want to do it if they had to do it again. In hindsight, they should have forced some of the difficult conversations that their grandfather had been unwilling to have a lot earlier than they did.

“The one thing that would have helped would have been if we had taken the bull by the horns earlier because, essentially, that’s what we did in the end and it worked,” says Bryan. “Nobody wants to talk to their father, mother or grandparents about what life’s going to be like and will I own the farm in 10 years, but you need to have that conversation because it’s going to take 10 to 15 years for you to be groomed properly and to buy in to the family farm. They’re too big now to leave it until the last minute like we did. It worked for us, but 99 out of 100 times if this was to happen again, it wouldn’t work.”

Kyle, who is 35, has attended a lot of conferences for young farmers, and he finds transition is always a hot topic around the table. His biggest advice for those young farmers is that the ball is in their court when they are dealing with the outgoing generation. They also can’t let themselves be deflected by the “you can’t afford it” attitude.

“People will use the excuse that ‘you don’t have any money.’ I worked (off the farm) for 10 years, and it’s true that there’s no way of saving up enough money to buy a farm, you’re going to need to borrow it,” he says. “I think you can force their hand a bit if you can say, here’s a banker willing to work with me, let’s have a serious conversation.”

They also feel they could have had more productive conversations with their own grandfather about taking over the farm if they had learned earlier how to see things more through his eyes and if they had been able to relate his experiences with their own.

“When you’re sitting there talking to an 80-year-old man and you’re potentially talking about borrowing $5 million, for example, it’s just amazing to him to think that someone could borrow that amount of money… he can’t fathom how that could be possible,” says Bryan. “Why would he? Through his career he’s seen where interest rates were up to 20 per cent in the early ’80s, and I can understand where he’s coming from. At the same time, I’m looking at it the other way because when he was my age, he was working for 75 cents a day and storing enough potatoes to fill the basement, not to fill 10.5-million-pound bins. Will we think that $5 million is a lot of money in 30 years? When I am sitting here and the next generation maybe wants to get into it, they might have to borrow $25 million, and I’m going to think that’s crazy!”

Although their grandfather would talk a lot about the hardships of farming over his 60-year career, he also told them that there was nothing else he would ever have wanted to do.

“That was the point that I think we probably could have stressed more,” Kyle says. “You say you don’t think it’s a great life, but you’d never do anything else. And we feel the same way.”

Lessons well learned

Their transition process, short and sharp as it was, plus their extensive experience on the farm means they have evolved into more confident farmers and business owners, and it has helped them with a recent expansion.

“We purchased another farm — not owned by family — last winter, and due to the fact that the first purchase we made, although it was from family, was very formal, professional and business orientated, it helped us in the last purchase,” says Bryan. “We were more seasoned.”

They certainly didn’t do things in a traditional way, but having a price tag that they knew they had to meet has made them understand how important it is for the outgoing generation to be transparent with the next about costs and other things that they need to know to be successful.

“There are some family farms that are guilty of keeping pricing to themselves, so Mom and Dad know what an acre of land costs and what the tractor payment every six months is, but they feel they are doing junior a big favour by keeping him kind of numb to the fact of how expensive it is,” says Bryan. “I don’t think they’re doing either party any favours because at some point junior is going to be making those payments and needs to know not only what it costs today, but what it will cost five years from now.”

Kyle handles the finances on the farm and says managing the cash flow and budgeting has allowed him to develop a good working relationship with their lenders.

“A lot of money gets flowed through farms today, inputs and equipment are expensive, so if you can show that you are on top of your finances and show you were able to meet your projections for revenue, or if costs were a little high, you have accounted for that moving forward, it makes your relationship with your banker a lot stronger,” says Kyle.

Teaching the next generation what not to do

In terms of the future, they intend to continue the legacy of their grandfather and are hopeful that one day there will be a fifth generation waiting to take over. They’ll be prepared, as Kyle and wife Krista have three children: Kate (8), Kent (5) and nine-month-old Klay. Bryan and his partner Ashley also have seven-year-old daughter Brynnley. But if that day ever comes, they fully intend to do things differently to make sure the next transition is easier for everyone.

“I hope that we never forget how we got here and that we make strategic decisions that will allow for our kids to enter the farm easier if they so choose,” says Bryan. “You can groom someone to be a farmer, but they need to have the want and the desire themselves, and if our kids have that, we hope we can make the next transition smoother and smarter. We will definitely teach them how not to do it because I would never want to see this family have to go through that again, whether I’m here or not.”

But they also know that the ball will be in their kids’ court one day too, and they are ready for that reality.

“The newer generation has to be educated enough and hungry enough to take the farm away from the older generation,” says Bryan. “You can’t hand it to them, you have to wait until they’re ready to take it from you.”

The post ‘You can’t hand it to them’ appeared first on Country Guide.

So, what are those fundamentals?

Paul Hammerton sums them up in just a few words: “healthy finances and internal strength in production based on a sound rotation, informed by good, science-based agronomy.” Hammerton, a farm management consultant with MNP in Swift Current, Sask., then sets out the challenge for today’s farmers. “You need to understand the dynamics of your business, including production potential, the financial structure of the business, the amount of risk that you are potentially exposed to, and how well equipped you are to handle that risk.”

To get to that point is a process that starts, usually, with a review of a farm’s current financial position, and maybe some modelling exercises, says Hammerton.

“We might be doing a budget or using our modelling software to look at what the client intends to do, and planning around that to get to different scenarios,” he says. “Once we load up all the critical information, which is assets, liabilities, operating costs, inputs, farm machinery, land building and financing, and set some parameters around what they want to do, we can see what that might look like for their longer-term average if they hit their targets, or what it might look like if it doesn’t work as well as they’re hoping it will.”

Get the conversation started

As every farmer knows, the growing season, markets and a whole plethora of things beyond their control can affect their operation in any given year, so knowing how well equipped the farm is to handle different scenarios is vital, and leads inevitably to a conversation about risk and how to manage it.

Hammerton begins those conversations by identifying three things that are especially important when assessing risk: the farm’s working capital position (liquidity), its risk ratio (percentage of equity invested in production) and how much debt it is trying to service.

“The first thing we need to know is what is their working capital position? How much do they have available to them in inventory (market-ready produce) and cash, plus any other short-term assets or investments, less any current liabilities, so less any money that’s already spoken for and then, how that net number relates to what it costs them to run the business,” says Hammerton.

As an example, if it costs a farm $1.5 million to run its business, it should ideally have minimum working capital of around $750,000 in place at the beginning of the farming year, and the optimum position is to have the full $1.5 million available. “We’d like them to have 100 per cent of working capital ready and available up front,” says Hammerton. “If they don’t, life is riskier for them than if they do.”

In reality, few farms have that kind of working capital available to them at all times, especially as they invest in expansion or are transitioning to the next generation, so that’s where the risk ratio comes in — how much of their net worth (total assets less total liabilities) is invested in producing their crop.

“It’s important to know what the farm is worth and what percentage of that are they putting out there each year to grow a crop,” says Hammerton. “If the farm is putting out $1.5 million to grow a crop and it’s worth $5 million, they’re putting 30 per cent of their net worth into production, and that’s a fairly typical number. Some farms can drop that number to 10 to 15 per cent. When you are looking at risk, if you’ve got strong working capital and you’re only putting 10 to 15 per cent of your wealth out there to grow a crop, you could probably stand most things that might get thrown at you. On the other hand, if you are putting 135 per cent of your net worth out there to grow a crop, that’s not sustainable.”

A farm also needs to factor in how much debt it is trying to service. “The first thing when it comes to financial fluency, is to understand all these concepts and decide where you want to be because if you have weak working capital and you go on investing in depreciating assets or expansion, that working capital is going to get weaker every time you do one of those two things,” says Hammerton. “If you’re gambling on the outcome from the next production cycle putting you back to where you were, or to a better place, and that doesn’t always happen, how far are you prepared to dilute your financial strength in order to do those things?”

What is internal strength?

To help insulate a farm business in unpredictable times it needs internal strength, but what does that look like? Business textbooks talk about a four-quadrant model of production, finances, marketing and people. At a certain level, says Hammerton, everything depends on the people to implement the plan, but if a farm wants to be successful for the long-term, it needs to have a sustainable and efficient production model.

“Whatever type of farming you do, you need to do it well,” he says. “For crop production, that all starts with a sustainable rotation that is based on good, sound agronomy.”

That may seem like an obvious statement, but the reality is that numerous forces can cause farms to make short-term crop rotation decisions that aren’t sustainable in the long-term, and that can change the dynamic in terms of its ability to sustain its production and financial health as well.

As an example, says Hammerton, there has been a lot of over-cropping of canola and pulses in many areas of Saskatchewan.

“We don’t particularly like to see any more than 15 per cent of acres into canola in southwest Saskatchewan because it’s a high-cost crop to grow, and if you get blistering heat in July, it fries the flowers and severely diminishes your yield, so from a risk perspective, we like to see a rotation that’s 50 per cent cereals based on a cereal every other year, maybe a quarter of the acres to lentils and then the remaining 25 per cent split between any two of about five crops which could include an additional pulse or maybe an oilseed.”

Farmers that follow this kind of rotation, adds Hammerton, tend to get stronger yields and spend less on weed and disease control.

“So, you can have a virtual circle of lower input costs and higher output,” he says. “Higher output doesn’t always mean higher revenue, but if you’re getting more bushels for lower input costs, that can go a long way to compensate for not growing as many acres of your most profitable crop as you would probably like to, and you can keep on doing it.”

Although there are obviously situations where farmers have fewer options about what they can grow, the bottom line is that the effects of a bad rotation will linger for a long time, says Hammerton, and farmers know their goals can’t be all focused on just that one year and quick profits. “Cheating on the rotation is fantastic until it isn’t, and once it fails, it could be a very long road back because root disease and chronic weed problems don’t just go away,” he adds.

Perhaps because of his plant-science background, Hammerton advises his clients to make use of good, independent agronomy advice and keep themselves educated about the science of crop production.

“One of the other things that has happened in the last decade or so is that farmers have adopted new technology,” Hammerton says. “They farm more aggressively because they’ve been incentivized to do so by having more successful years based on decent prices for the most part, and some good growing seasons, especially prior to 2017. But now, there are a lot of people putting technology ahead of science and the two are not always the same. If you understand the science, you will be a more discerning user of the technology.”

Managing the risk

If businesses took no risks, they most likely would never grow or expand, and farms are no different, but the question to ask is what is the farm prepared to pay to cover that risk and how are they going to do it?

There are options — such as government and private insurance programs that farmers can use to help cover some of their risk, but they should be aware of exactly how those programs work and what they will actually cover, cautions Hammerton, who runs them through MNP’s Agricultural Risk Management Projector to help them figure these things out. Farmers enter their production and financial data, and the projector adjusts from 100 per cent of anticipated yield down to zero yield to see where the various insurance programs kick in and how much coverage they give.

“What we have seen is that as farmers have difficult years, some of the coverage in these programs diminishes because their margins have been eroded as their yields have been depressed by a number of bad years, and because the private programs have lowered their attachment points for revenue and margins in many cases, as compared to three or four years ago, when farmers were getting better results,” says Hammerton. “So, all of a sudden, they’re paying for insurance that isn’t necessarily going to kick in where they think it will, or need it to, particularly if their cost base has increased. If they have a low cost base, and a history of high revenue, they will get the best coverage and, in some cases, could be bomb-proof, at least in the short term, but they need to understand how these programs work and how the coverage offered can vary over time.”

Businesses can fail not just because they are not profitable, but because they run out of money. “Understanding what it means to overreach yourself is also where financial fluency comes in, together with an appreciation of your own limitations as a manager,” says Hammerton.

“Farmers who understand the management requirements of the business, who get these points about production and finances, and recognize the roles of the supporting cast in trying to drive those twin objectives forward, are the people who do best, whatever the circumstances. They expand when the opportunity is there and continue to be successful when times are tough.”

The post A word about your farm appeared first on Country Guide.

“We decided to step out,” Besser says. “But slowly.”

Demand was high. The morning Besser opted to rent out some land, it was gone before breakfast. But the Bessers were content to take their time finding the right buyers.

Over a period of three years, they sold some land to their long-term renter, a nearby farmer. The first piece sold at $1,000 an acre; now, an acre fetches $3,500, which means they’d have missed all that appreciation if they’d sold the farm lock, stock and barrel that first year.

Playing the long game also paid off when it came to selling equipment.

“We didn’t get too excited about selling equipment. I did custom work with it and paid out outstanding loans and waited until I could sell it for what I wanted,” says Besser.

His grain dryer is an example, Besser recalls. “I had done some custom work with it and then a year came along where it turned wet in the middle of the season and they couldn’t get dryers fast enough, so I sold my dryer for the amount I paid for it.”

“Same with the four-wheel-drive tractor — it took a couple of years to sell it for what I wanted. I custom combined for three to four years and then got a really good price for my combine and straight-cut header.

“I had little farm loans — a little on this and on that, stretched out for seven to 10 years, and I just paid them out as I sold the equipment, and it was very light for me tax-wise.”

Of the 3,000 acres the Bessers had farmed, 1,500 was rented land. Toward the end, they were farming 1,100 acres, which they rented out for three years prior to selling the last pieces of equipment.

It took hours on the phone, Besser admits, but the Bessers saw value in being patient. Some equipment sold locally — within 20 miles — but the rest sold to other parts of the province. Some pieces went to dealers and sat on lots for a period of years before selling, but the Bessers always waited until they were happy with the deal.

Three or four years before Besser sold his semi-tractor, he quoted a price to an interested farmer. Besser custom hauled some grain, sold the trailer, and then parked the semi in the yard, where it sat.

Years later, Besser got a call. It was that same original buyer on the line who “suddenly desperately wanted that truck” — and was willing to pay the original asking price.

“It’s a totally different game when you get into the position where you don’t have to sell but it’s out there to sell,” Besser says.

“The right buyer always comes along if you’ve got good stuff, if they want it and there’s a need for it.”

These days, the Bessers aren’t full-time farming, but they’re keeping their hands in the game.

“We have a strong connection to our land. It’s hard to up and sell.”

Slowing down

Don Forbes of Forbes Wealth Management in Carberry, Man., is the Bessers’ financial planner. He says most farmers have no interest in leaving the family farm a moment before they have to. Rather than selling the farm on a turnkey basis, they often opt to reduce the scale of their operations and retain the homestead so they can stay on the land.

“Sometimes there’s a century farm and there’s a huge emotional attachment,” Forbes says. “It’s a huge time period, and there have been trying times when farmers kept farming because they loved it, not because of profitability.”

Most times when Forbes works with farmers who don’t have successors, they choose to slow down gradually — they stop investing, rent out land or auction off equipment, or continue farming on a less aggressive scale, putting land to hay.

“They have been outdoors and in control of their own destiny all their lives and then all of a sudden they’re in a condominium. Most of them (prefer to) say, ‘I’m leaving the farm in a pine box,’” says Forbes.

Retiring farmers who have less of an emotional attachment to the land, Forbes says, might opt for a realtor to sell the operation wholesale. “The stories you hear in the coffee shop are that they can extract some nice valuations,” he says.

Forbes says few farmers opt to sell their operations and equipment piecemeal over a long period the way the Bessers did. Instead, trusted neighbours or their children will typically buy or rent the land and equipment from the retiring farmer, removing the need to formally advertise or use a realtor.

Whatever route they take, Forbes says retiring farmers should first examine how they feel about selling the farm. “They should always ask, ‘What’s the emotional aspect here?’ How can we address that first?” he says.

To list or not to list

Douglas Gunn is a St. Thomas, Ont. lawyer who advises farmers on succession.

In Ontario, Quebec and Saskatchewan, farmland continues to increase at a rate slightly above the national average, according to FCC’s 2019 farmland values report.

Gunn says farmers looking to sell have lots of options: they can sell to a neighbour, list the farm with a realtor or put out a call for tenders.

Listing with a real estate agent gets a farmer much broader exposure and might net the best price, but commissions can be in the range of four to five per cent, a “significant bite out of the proceeds,” he says.

Another option is to work with a lawyer to identify the probable purchasers within the immediate area and let them know the farmer is interested in entertaining offers. Perhaps 75 per cent of Gunn’s farm clients have sold their farms that way, he says. When the farm is sold directly by the owner, he or she can sometimes discount it.

“That makes it more attractive because buyers know instead of getting the value of the property plus commission they can get a better price by negotiating directly with the retiring farmer,” he adds.

The key, he says, is to generate competition by identifying multiple potential buyers.

The first step retiring farmers should take is to ask, “Who is the probable purchaser?” says Gunn. “If it’s a farm nestled between other farms on good land, it’s highly unlikely that you’ll be having someone from Toronto or Mississauga buying that property — it’ll be neighbouring farmers.”

But listing results can sometimes be “extraordinary” — particularly when the farm is in close proximity to an urban area and has future development potential.

“Sometimes farmers who have farmed for decades don’t have a sense of how far the municipality has encroached outward,” he adds.

Alister Maclean, a realtor with Sutton Group in Ingersoll, Ont., says he advises farmers to take advantage of their position by selling while their farms are in full operation, but most livestock farmers in the area typically dispose of equipment and the “outer reaches” of their land and retain the home parcel in order to live on the farm into retirement.

“In Ontario we have these 100-acre farms and (one farmer) may own a dozen or more so they sell them off annually and rent them out for income and sell the home place at the end of it all,” says Maclean.

If they opt to sell over the fence, farmers end up selling to the tenant who doesn’t pay as much because they don’t have to compete for it. “Then there are those who take advantage of a good strong market and can maximize on dollars and cents if they expose it properly,” he says.

“Every farmer has his own idea how they should exit. Some want to give the young farmer a break. There are as many ideas out there as there are farms.

“There’s no right or wrong way, it’s just whether or not they want to achieve the best price for their retirement.”

Howard and Jannette Besser live in Arizona during the winter, but the rest of the year you’ll find them in the family farmhouse. Their son has taken on some cattle and still uses a small amount of land. Their trusted relationship with the man who bought their land has made this arrangement possible, says Besser.

It was late April when we last talked to the Bessers for this article, but Besser didn’t have anything to plant. Instead, he was looking out the window at the farmyard when suddenly he paused.

Then he mused, “There’s a good $200,000 worth of stuff that could be sold yet — hopper bottom bins, tractors.”

The post Winding down: How will Canada’s aging farmers sell their land? appeared first on Country Guide.

“FCC is the Canadian standard for financial support and banking in agriculture and agri-food in the country,” says Dave Smardon, president and CEO of Bioenterprise. “They have connections that span the entire value chain, so this is a perfect partnership for us.”

Partners in investing

Based in Guelph, Ont., Bioenterprise is a non-profit commercialization accelerator working in the agtech space. FCC is the Crown corporation that provides financing and business services to 100,000 customers including farmers, agri-food and agri-businesses across the country.

The initial contract, which runs from January 2020 to the end of March 2021, is worth more than $1 million, and was announced in late January.

Smardon says his organization was looking for a partner to take a proactive approach to encouraging innovation in the sector. FCC, in its turn, had just revisited some of its strategies in the fall of 2018 and was looking for opportunities to refresh its venture capital program.

“There’s a real need for agtech innovation,” says Rebbecca Clarke, vice-president and treasurer of FCC. “We had made investments in agricultural venture capital funds in Canada previously, and wanted to support entrepreneurial innovation at all stages of the business life cycle.”

FCC is looking to invest not only in agtech, but also in a broad spectrum of sub-sectors in agriculture and food, particularly in the agri-environmental sphere.

With this partnership, FCC wants to support a more national presence for the services that Bioenterprise provides, particularly in Quebec and the Prairies. Clarke says the objective is to help 50 or more companies in these regions.

“We want to provide areas that are currently underserved with commercial accelerator services,” she says, noting that FCC’s mission is to support a strong and stable Canadian agri-food sector. Part of that mission is to spark more investment in agtech.

“At the end of the day, we’re creating a collaborative approach to innovation,” Clarke says.

Across the globe

Global venture capital (VC) investments in agriculture and food technology have expanded exponentially over the past five years.

According to AgFunder, these kinds of investments increased five-fold from 2012 to 2018 to a total of $20.8 billion. In 2019, food tech experienced its first downturn since 2016, taking a 7.6 per cent hit to $12 billion. Agtech, however, enjoyed a modest uptick of $100 million to $7.6 billion.

AgFunder is a California-based venture capital fund that has been producing an annual report on global investing in the ag- and food-tech sectors for the past six years.

In AgFunder terms, food tech encompasses in-store restaurant and retail, online restaurants, e-grocery, restaurant marketplaces, home and cooking. Agtech includes ag biotech, farm management software, farm robotics and equipment, bioenergy and biomaterials, novel farming, agribusiness marketplaces, midstream (traceability, processing technology and logistics) and innovative food.

The new megatrend

Regional interest in agtech remained robust in 2019. Europe posted a 94 per cent increase in funding over 2018 and Latin America accounted for $1.4 billion with 40 per cent more deals than in 2018. Africa also doubled investments. Canada came in seventh of the top 20 countries, with just more than $500 million.

“Food tech and agtech are no longer the red-headed stepchild of the VC world as sustainability becomes a 21st century megatrend,” according to the report.

The report also stated that agtech investments are increasingly being made by more generalist investors, rather than specialty funds. It noted the addition of SoftBank and Temasek as additions to top investors.

Smardon agreed that many more companies that weren’t traditionally interested in agriculture and food technology are now jumping in, including Microsoft, IBM and SAS.

Back in Canada

For Smardon, the idea is to take strategies that have been successful for the 2,500 innovations that have come to market under Bioenterprise’s watch since 2005 and apply them across the country through the FCC agreement.

Bioenterprise partners with locally based non-profits to deliver mentoring, business and financial advice, networking and other services mainly to small and medium-sized enterprises. It already has agreements in the Maritimes, Ontario and B.C.

In the Maritimes, InnovaCorp in Halifax is an early-stage venture capital organization that funds entrepreneurs in IT, clean tech, ocean tech and life sciences. The Quebec partnership is with EcoFuel, a Montreal-based clean tech venture capital fund that also provides mentoring, business training and networking services.

“There are a number of critical components to moving a product or service from the bench to the marketplace,” Smardon says, noting that the work Bioenterprise does with its clients can take as little as a few months and as much as two years.

Having the FCC as a national partner will not only lift the prospects of Bioenterprise and the businesses it supports, it will also send strong signals to private investors that agtech is a good place to make money.

“Investor interest takes a long time to change, but with the intelligence and credibility that FCC brings, it’s only going to help attract more investors to the table,” Smardon says.

The window of opportunity is not that large and competition is fierce, he says, so it’s important to move quickly in order to encourage the “innovation ecosystem” that will boost Canada’s prospects in the future.

The post Funds for agricultural innovation appeared first on Country Guide.

I’m not going to lie. I initially struggled with wrapping my head around writing about such an unsexy though of course critical component of day-to-day farm operations. What more could possibly be said that hasn’t been said before about this basic accounting exercise?

Should I go all generic and include reminders of what to do and not to do, or dig really deep and uncover some hidden secrets?

Plus, you know, numbers. There are many of us who recognize the intrinsic importance of knowing our business numbers, but nonetheless cringe at the thought of getting into some heavy explanations and in-depth analysis.

I mean, that’s what you pay your accountant for, right?

But here’s the thing. Growth plans can put pressure on a business’s liquidity, and improving cash flow can generate more funds to support that growth.

Cash-flow budgets can also help you plan for capital purchases, credit lines or loans. Plus, a cash-flow budget can help find more efficient ways to time expense payments throughout the year. It can tell you where the money went, and how and where to focus on creating extra cash, and it can provide a solid foundation for financial decisions and key performance indicators. Most importantly, it provides insight into whether you can take on an expansion project or new marketing opportunity.

Being aware of what’s coming in and out of your business is the cornerstone to building, growing and sustaining that business. To find out where you need to go, you must look at where you’ve been. Analyzing your cash flow can be a quick and easy (and not that painful!) way to do just that.

Below, you’ll find reminders, tips and some interesting approaches to improving cash flow on your farm.

It’s not just about taxes

“You have to be better before you can get bigger,” says Francois Bourgeois.

Well, that sounds like an incentive.

And here’s another, from the same source. “Basically, the biggest thing you can do to improve your cash flow is know your numbers.”

Bourgeois is a CPA, CA and partner at BDO Canada in Embrun, Ont., and he knows that farmers will often focus more on trying to decrease the amount of taxes they pay rather than on improving cash flow. “One way to look at it is that if you’re profitable, you’ll pay taxes, so it’s not necessarily a bad thing. What you should be keeping track of on a regular basis is your debt repayment and how you can manage cash flow to pay the bank.”

Bourgeois says that in order to sustain or grow your business, you need to focus on the efficiencies of your cash flow. “For example,” he says, “calculate what is your cost per kilo of milk produced or cost to grow an acre of corn. Next, figure out what is an average yield and average price you’d receive if you were to purchase an extra acre or an extra kilo of quota. This will help you to determine if you can support that extra purchase or where you need to improve before moving forward.”

He admits that some factors, like weather, are obviously out of our control. “But you can try to be as efficient as possible with the way you’re producing,” Bourgeois says. “Your timing, for example: if the weather was ideal, but you plant a week late this could result in a half-tonne-per-acre loss. In dairy the number one factor that affects cash flow is the quality of your feed. If cows produce less milk from poor feed, then you’ll have less cash on hand, so poor timing of planting and harvesting crops could again become a significant factor affecting cash flow.”

Other factors like fluctuations in commodity prices, debt repayment commitments, and operating efficiency of the farm operation also have an impact on cash flow, notes Mark Verwey, a chartered accountant, BDO partner, certified financial planner and registered financial planner in Portage la Prairie, Man.

How to improve cash flow

“Bankers do not like surprises,” says Verwey, “and are much more likely to work with you if they are kept abreast of any anticipated financial hardships. Financial institutions rely heavily on a ratio called the debt service ratio which assesses the ability of your operation to service your existing debt obligations, which includes principal and interest payments. It’s very important to understand how this ratio is calculated. It’s also a great way to evaluate expansion opportunities since it requires you to evaluate both the cash inflows and outflows of a particular opportunity (e.g. land purchase).”

Verwey suggests reviewing your cash flow at least quarterly, or sooner if a major cash payout is anticipated where a sizeable loan payment or repayment of an entire loan is imminent.

BDO uses five expense categories to determine cash flow. The list might seem complex, but it holds the key to discovering where the holes are in your cash-flow bucket:

1. Cost of goods sold (raw material inputs, e.g. feed, seeds, fertilizer, etc.).
2. Direct operating expenses to run the farm (fuel, repairs, wages, etc.).
3. Overhead expenses (fixed costs like property insurance, office expenses, etc.).
4. Capital-related costs (expenses for owning and renting assets, e.g. amortization, property taxes, interest fees, etc.)
5. Other income and expenses (e.g. insurance proceeds, AgriInvest and AgriStability income, gains/losses on sales of capital or investments).

Bourgeois comes back to his point about really understanding your numbers. You can do that, he says, by analyzing your ratios in order to see how you compare to others.

“You can also gain a lot by talking to your neighbours about your numbers,” Bourgeois adds. “It’s not like you’re two retail giants vying for the same market; you and your neighbour are going to get paid more or less the same for this year’s corn or for fluid milk, but it can be helpful to see where they’re saving or focusing on efficiencies so you can think about applying those practices to your farm.”

According to the article “Why Cash Flow is Key” on the Manitoba government’s website, there are five tactics you can use to improve cash flow for your farm business:

1. 1. Increase income by increasing the scale of operations. This could mean implementing ways to bump up crop yields or quality, adding acres or livestock to your farm, or finding new sources of income through, for example, custom work, off-farm jobs or a new enterprise. You could also consider selling non-productive assets like unused machinery.
2. Decrease expenses by negotiating seasonal discounts on seed, fertilizers, sprays, feed, etc. See if you can maximize advance payment programs by receiving a cash advance at a lower interest rate on operating credit. Periodically ask lenders to reassess your operating line of credit for lower interest rates.
3. Decrease personal withdrawals for non-farm expenses from business accounts.
4. Decrease the amount of principal owed on loans by paying them down as quickly as possible. Consider making payments on principal loan balances during high income years (but ask about any prepayment penalties first).
5. Analyze your debt load to evaluate whether there’s a better way to finance your operations. For example, a loan consolidation could offer a lower interest rate and an extended repayment period which could free up some cash for current operations.

Where can you go wrong?

What are some of the most common mistakes Bourgeois sees. Farms that don’t track cash flow, focus too much on income tax, or just keep doing what their mom/dad always did and don’t assess any new information outside of what they already know.

“There’s a strong correlation between producers who have strong financial management skills and the success of their operations,” agrees Verwey. “Cash-flow management is one of those skills.”

At the same time, those producers also know that financial management pays its biggest dividends if you make it part of your routine, rather than a once-per-slog when you have to figure out those taxes.

“You don’t need to wait until the year-end to analyze your cash flow,” says Bourgeois. “With a good accounting system or a simple Excel document you can manage your cash flow monthly. The more information you have, the better equipped you will be to make decisions promptly and realign your operations.”

Farms with admirable balance sheets and income statements can still struggle with cash flow. Generating healthy cash flow on your farm is a result of timely and regular cash-flow analysis and implementing proven strategies to boost operation efficiencies.

“Cash flow is king,” reminds Bourgeois. “The future growth of your farm depends on how well you manage it.”

What can you do right now?

Go old school: grab a pen and paper and across the top of the page write down categories that affect your short- and long-term cash flow, like Debtors, Creditors, Inventory, Loans, Tied-up Capital, etc. Under each category, brainstorm as many ideas as you can for ways to create better cash flow in that category. For example, under Creditors, you could look at extending payment terms or agree on instalment payments. If people owe you money (e.g. for custom work you perform as part of your farm business), for quicker payments offer them a discount if the invoice is paid before 30 days (so you can pay your creditors) or set up automatic email payment reminders so you can get paid faster. After you’ve identified a bunch of potential tactics to increase your cash flow, weed out the less viable options by rating them on a scale of one to five. You could also take this cash-flow planning initiative a step further by listing how you will carry out each of your ideas and/or if there’s someone to whom you can delegate this task.

Bourgeois suggests taking a few minutes to work out this simple equation to help you determine how much cash you have to “play” with: Profit before interest and depreciation (or any other non-cash expenses) minus your bank requirements for next year (capital + interest payments) = what you can afford/how much you will have left over to invest to grow bigger.

You can also do a quick benchmarking exercise to help you detect inefficiencies and identify things that are working well so you can do more of them. Look at your last five years on the farm globally: what’s changed? Why? Then take your numbers to a professional to compare yours with other farms in the same sector and/or size. Benchmarking your operations against other farm businesses similar to yours will help you evaluate opportunities for improvement, set goals and performance expectations, and help you monitor that performance to effectively manage change and growth.

April M. Stewart is the owner of Alba PR, a brain-to-brain communication design firm, and the creator of “The Farmer’s Survival Guide: How to Connect With 21st Century Consumers,” a blog and workshops which look at communication impact boosters. She is also a sixth-generation Quebec dairy farmer, president of Canadian Young Speakers for Agriculture, and a member of the Canadian Agri-Business Education Foundation board. You can find her on Twitter under @FarmersSurvival.

The post Analyzing your farm’s cash flow appeared first on Country Guide.

Risk has been part of human lives since we crawled out of the ocean, scurrying away from predators. Our basic physiological responses (e.g. fight or flight) were born of the desire to avoid risky situations in order to stay alive another day.

Modern humans, though, have a funny relationship with risk. Many of us believe we might win this week’s lotto jackpot, yet we look askance when cautioned about a risky investment.

Every business faces risks that can present very real threats to its success.

Learning to identify, analyze, monitor and control these risks will help you achieve your business objectives.

In parts one and two of this series, we looked at the process of business planning and growth strategies. Planning and strategizing are two ongoing and critical business activities, but ones that inherently include risk. In this column we’ll look at how you can develop a risk management strategy as you scale up your operation.

Types of risk

Farm Management Canada drills into risk with a comprehensive list of six “families” of risk — people, finance, markets, management, business environment and production — under which fall 19 risk categories.

Learning about the different types of risk will help you formulate a risk management game plan. Like reading through the latest seed traits guide or bull proofs, once you know what’s out there, you can prepare and make informed decisions based on your unique business environment.

Business theory identifies four categories of risk:

• Strategic: Risks associated with operating in a certain industry; for example, purchasing land or quota to grow your business.
• Compliance: Risks associated with having to comply with laws and regulations; for example, environmental plans. These types of risk can add to your overhead costs or force changes in the way you currently work.
• Financial: Risks associated with the financial structure and systems of your business. To identify these risks, you’ll need to examine your daily financial operations, like cash flow (which we’ll cover in the next column).
• Operational: Risks associated with operational and administrative procedures, such as burdensome approvals or red tape.

Other risks include environmental (potentially a big one as climate change continues to affect growing seasons and quality and quantity of crops), political and economic instability at home or in export markets, and health and safety risks.

Getting started

We tend to treat risk planning the same as we do wills. We’ll either “get to it someday” or ignore it altogether. After all, if we ignore it, it isn’t there, and if it isn’t there, nothing can happen, right?

In the 2012 Harvard Business Review article “Managing Risks: A New Framework,” authors Robert S. Kaplan and Anette Mikes note that “extensive behavioural and organizational research has shown that individuals have strong cognitive biases that discourage them from thinking about and discussing risk until it’s too late.”

It sounds complicated, but basically it means that we’re wired to NOT think about the awful things that might happen tomorrow, and instead put our energy into the positive things we can do today.

According to Kaplan and Mikes’s research, there is a list of six cognitive biases that we should recognize, because they can be having a harmful effect on our ability to assess and mitigate the risks for our farm.

As you read the list, ask yourself, how many of these are you prone to? The answer, probably, is all of them.

• We generally are “overconfident about the accuracy of our forecasts and risk assessments and far too narrow in our assessment of the range of outcomes that may occur.”
• We also “anchor our estimates to readily available evidence despite the known danger of making linear extrapolations from recent history to a highly uncertain and variable future.”
• Our confirmation bias makes it even worse, driving us to believe anything we hear that supports our thinking, and to dismiss anything that goes against it.
• We are also too quick to throw good money after bad, escalating commitment and irrationally directing even more resources to our failed course of action.
• We fall prey to groupthink. The social aspect of our human nature also makes us susceptible to the pitfalls of groupthink: “Once a course of action has gathered support within a group, those not yet on board tend to suppress their objections — however valid — and fall in line.”
• Many businesses give risk a chance to grow. They turn a blind eye to what seem like minor failures, and they treat early warning signals as false alarms.

As with any cognitive bias, just being aware of these behaviours plays a large part in overcoming them. To help you formulate a better line of attack, each time you discover or assess a potential risk, challenge yourself to make a list with concrete examples of when these behaviours may have influenced your own decisions about risk.

How to deal with risk

Risk management is all about identifying what could go wrong, evaluating the likelihood of that happening, and implementing strategies to deal with those “what ifs.”

AgriShield is a new online platform available to farmers (and advisors) that walks producers through the process of assessing, prioritizing and developing a plan to mitigate their risks. The platform is available at www.myagrishield.com.

In business circles, there are four ways you can deal with risk: accept it, transfer it, reduce it or eliminate it.

Your risk management plan will outline the tools and processes for the risks you’ve identified and the way in which you want to deal with them.

Seth Godin, one of the best-known marketing experts in the world, didn’t reach his professional pinnacle by not knowing a thing or two about risk. He said, “Resilient systems are far more effective and efficient. It’s easier to paddle a canoe on a calm lake, and the interactions and stability that come from predictable systems more than pay for the extraordinary effort needed to build and maintain them.”

How can you build a resilient and predictable system? Mathieu Lipari, program manager at Farm Management Canada, suggests the following:

• Using the categories of risk from above, start by identifying the risks that relate to your farm. Risk management isn’t just about things you can cover with insurance. In fact, most risks can probably be dealt with directly on the farm with a little planning. Consider as many possibilities as you can: health and safety, finances, marketing, technology, public trust, farm transition, relationships with people (family, employees, suppliers, buyers, consultants, contractors), legal risks and regulations, and even your own personal health.
• Once you’ve identified the risks most likely to affect your business or project, take a few minutes to prioritize them so you know where to start when it comes to managing them. Simply jot the risks down on paper, assign a probability number from one to five (one being highly likely it could happen) and list any potential consequences. Using the same scale, rank the impact(s) this event would have on your farm. Multiply the two numbers (frequency/likelihood and impact); the risks that score the highest are the ones with the highest risk level. Alternatively, you can use a graph with four quadrants to plot frequency/likelihood against impact to visualize your risk priorities. Using a risk scorecard or map like this allows you to easily identify significant risks at a glance and helps you determine which control measures should be implemented to mitigate them.
• After your assessment, think of how well prepared you are to face those risks, especially the risks that rank top priority. What measures do you have in place to mitigate them? What tools could you use to put measures in place? Are you insured? Are you using a government Business Risk Management (BRM) program? And, most importantly, have you planned for this risk? Some best practices are simpler than you may think. For example, for operational risks, do you have standard operating procedures? For marketing risks, do you have contracts in place with your buyers or suppliers? For people risks, do you have an employee benefits plan to retain good employees (benefits do not always equate to salary!) or do you have staff events to recognize their hard work? For strategic risks, do you have regular meetings to review your progress against goals?
• Once you’ve figured out what risk management strategies are already in place, revisit your risk prioritization list to see which categories aren’t covered. This is an important step because there’s no point focusing on risks that you’re already managing. Instead focus on the ones that you’re not managing well to help reduce your overall risk exposure.
• Finally, build an action plan: Determine which best practices can be used to mitigate the high-level risks that aren’t well covered, assign someone to take care of it, and set a realistic timeline to put that mitigation measure into action so it won’t be put aside and forgotten about. And don’t forget to follow up on your plan!

“This may seem like a lot to do on your own, but there are tools (see below) out there that can help, including farm consultants and advisors,” says Lipari. “And even if you can avoid or reduce just one risk event — avoid one farm accident or a deal falling through because you didn’t have a contract — it will have been worth the investment in time and money you spent on a risk management plan.”

Three steps to take today

Keep yourself awake in the tractor cab by doing some war-gaming exercises. A role-playing exercise adopted from the military and usually done on executive teams, war-gaming is essentially a simulation of a specific situation where the outcomes are unknown. What decisions and actions would you take if X occurred? What would the repercussions be? Did your response(s) solve the problem, or do you need to develop a new line of attack? It’s a great way to informally develop risk mitigation strategies.

Train your brain to be risk ready: By attending farm shows, conferences or webinars you’ll stay up to date on the latest tech, tools and tips. Knowing the array of options out there will help you find the right mix of risk management tools and processes for your farm.

Rather than expand your operation horizontally, look at adding revenue streams through diversification (see last month’s column) to optimize the resources you have on hand and spread risk over your existing operation.

April M. Stewart is the owner of Alba PR, a brain-to-brain communication design firm, and the creator of “The Farmer’s Survival Guide: How to Connect With 21st Century Consumers,” a blog and workshops which look at communication impact boosters. She is also a sixth-generation Quebec dairy farmer, president of Canadian Young Speakers for Agriculture and a member of the Canadian Agri-Business Education Foundation board. You can find her on Twitter under @FarmersSurvival.

The post Thinking about risk? appeared first on Country Guide.

If you’re an existing farm, this means developing a growth strategy. In 1957, Igor Ansoff, known as the father of strategic management, established four main strategies for generating sustainable business growth: market penetration (sell more stuff to target customers), market development (find new markets and customer segments), product development (develop more products for your target market) and diversification (new products for new markets).

There are several ways you can apply Ansoff’s principles to a farm business to increase the scope of revenue-generating activities:

• Capacity expansion: “More of the same,” i.e. horizontal expansion whereby you acquire more livestock or acres to take advantage of economies of scale.
• Replication: A form of capacity expansion where the existing operation is replicated at a different location. Used when expansion at the current location is not possible (e.g. livestock).
• Intensification/modernization: Another form of capacity expansion where current assets are updated in order to create more efficient production through the same asset base.
• Networking: A vertical or horizontal growth strategy which leverages current assets of a group of businesses through information arrangements, contracts or joint ventures to increase efficiencies and advantages that an individual business may not be able to acquire alone.
• Integration: A vertical expansion strategy e.g. processing products/commodities or furnishing input on the supply chain.
• Diversification: A horizontal strategy that adds new enterprises to the existing business.

The Business Development Bank of Canada (BDC) was clear in its 2015 report, “Diversify, Diversify, Diversify: A Key Growth Strategy for Small and Mid-Sized Firms.”

“Regardless of size,” the BDC report said, “even modestly diversified businesses outperform their less-diversified counterparts.”

The report also notes, “it is rare for a business strategy to achieve the goals of lower risk and higher growth simultaneously. Diversification is an exception, but deciding when and how can be difficult.”

Choosing a growth strategy or combination of strategies that are aligned with your overall business goals is a good first step, but there’s more to it than that. The type of strategy you choose will depend on factors such as finances, target markets and other important business resources (human, skills, etc.).

David Madié, founder and CEO of GrowthWheel International Inc., a visual toolbox and cloud-based platform used by business advisors to help companies make decisions and take action, suggests first jotting down your ambitions for different aspects of your business to determine what you would like to see happen in those areas.

“Strategizing is something farmers already do everyday. Whatever you call it — operational choices or strategic choices — once you have a collection of choices, that’s where you start to say, ‘These are the things I’m deciding on and these are the things I will consequently be doing to make them happen,’ and, collectively, that’s the way you’re going to make a better business.”

Ready…

Madié says that while the decision to grow and diversify your business is a very personal one, it all comes down to one consideration: “What would need to happen, and what situation would you need to be in, before you would consider a growth initiative.”

“There are lots of ways to define strategy,” he says. “For example, you might say, ‘When I reach this revenue, I’ll hire one more employee’ or ‘When I get that opportunity, I’m going to grow my business by asking for a loan.’ It will take some careful exploration for you to find out what are the triggers that make you ready for a growth scenario.”

He also says you shouldn’t just jump on the first cool revenue-generating idea you think of. “If we consider a growth strategy to be a series of choices, then you have to start by looking at the different kinds of things you make decisions about,” he says. “For example, do you have a choice(s) about how your project will be financed? Do you have an actual choice if you choose a diversification approach, meaning do you have the resources (human, skills) for that? Knowing your strategic choices and then knowing the alternatives for these choices will help you figure out what to do next.”

One Saskatchewan farmer who has doubled his herd and acreage in just five years told me recently that he makes a point of fine-tuning his opportunity radar. “We keep our eyes and ears to the ground at all times, and when we see an opportunity, we grab it.”

But remember, says Terry Kash, founder of Saskatchewan tech think tank Brainblender, you also have to consider your capabilities. “Where are your strengths and what could you reasonably do if you get everything you want tomorrow? Would you be able to fulfill that commitment?”

Set…

Madié says you should inventory and leverage current assets such as people skills, land, equipment and available cash. For example, BDC says to consider whether an existing office or building, machinery or staff can be used for other purposes without adding costs. “Appraising current assets will be helpful in generating your strategic choices, because you may have a situation where you actually have some money on hand,” he says.

“So, you say, geez, you know, I have $10,000 to spend on something. How should I use that money? Should I buy a new piece of machinery or hire another employee? Now we have a choice. Looking at your assets and realizing what you have is going to help you make better strategic choices and therefore a better growth strategy. And if, while assessing assets, you realize you don’t have or can’t get something (e.g. financing), then that’s a lot of choices you don’t have to worry about right now, so you can focus on X instead.”

Kash says be careful to only leverage what you are okay with losing. “Often with good planning, you won’t need to leverage much as you will have built in contingency plans.

The BDC report says you must address weaknesses and you should constantly stress test your business. Can the business protect itself from the biggest risks it faces? They also say it’s important to ensure that financial resources can sustain existing operations so that the business will not be compromised as you implement your growth plan. In terms of diversification, they say that there are lots of ways to diversify, and business owners should carefully consider the least expensive and least complicated options.

If weighing choices informs your strategy, then an action plan helps you carry out that strategy. Madié’s approach is to create a 30-60-90-day action plan based on a variety of proprietary, easy-to-use worksheets (you could stash a binder of them in the tractor for free moments or use the cloud-based version), but he says apps like Trello, Asana, the Business Model Canvas, an Excel spreadsheet, or even a notebook will work as well. “It’s a waste of time to do too much detailed planning, because when you can’t keep up or do it all, you just feel bad about breaking agreements with yourself,” he says.

Madié notes that it doesn’t have to be an academic exercise where you write a 50-page document; you just want to brainstorm ideas, create a list of action items for how you’ll achieve them, calculate the time you’ll spend on each, and assign dollar amounts to each action.

“If the numbers match activities, then I think a few pages is enough,” he says. “The point is that you don’t need to detail the planning process. By chunking your growth strategy into 30-60-90-day segments, you give yourself the flexibility and the chance to make smart decisions about changing priorities as you go along. ”

Jonathan Chan’s “Grow Your Business” blog says that there are six simple rules to keep in mind when figuring out which is the best growth strategy for your startup or existing business:

1. Product development should always be a logical extension of your core product.
2. Always refine and optimize your core business before diversifying.
3. The more you test, the faster you’ll grow.
4. Let customers lead your product development.
5. Growing too fast can kill your business.
6. Examine what your drivers of growth are and double down on what’s working.

And remember to take care of yourself when things start getting hectic. “This may not be on everyone’s radar but be sure your mental health is in it as you don’t want to take on something that overwhelms you; you want to enjoy the process and subsequent success,” says Kash. “As I tell everyone, if you work towards HAPPY you will be better for it and things will go a lot farther.”

Go!

As a business matures, or as the climate in which it operates changes, a farm owner may start looking at growth strategies for ways to not only generate more revenue, but to future-proof their business.

Keith McFarland, author of The Breakthrough Company, says that growth strategies are like a ladder: lower level rungs are less risky, but offer little impact in terms of growth potential. The higher rungs involve bigger risks, but the payoff is correspondingly huge. He suggests a small business should start at the bottom and work up.

An advisor who specializes in growth strategies can help you analyze the business from every angle and assess choices in order to select the strategy that will offer the most bang for your buck.

Madié says that if you’re working with a strategy tool and you don’t think it’s really offering any concrete action steps, it might not be the right tool for you. “The same goes for advisors: if a business advisor is not able to help you generate results you can see … then you may be better off working with someone else.”

The Saskatchewan farmer I mentioned earlier says once he’s found an opportunity, his recipe for growth success is based on three ingredients: a good mix of market research, being prepared and gut instinct.

Ultimately, your growth plan will be unique to your farm size, type, goals, finances, accessible markets and available resources, but support from your network (family, advisors and friends who’ve “been there, done that”) is crucial.

“It’s the voice of doubt inside our heads that kills more dreams than failure ever could,” says Kash, “so having someone who maybe even doesn’t know much about the idea, but who you can bounce ideas off of is a huge asset.”

What next steps can you take today?

• First figure out if you have a prevention-focused or promotion-focused approach to identifying opportunities. As Heidi Grant and Tory Higgins write in their book Focus, the combination of ingredients you need to be an opportunity spotter is “creativity, open-mindedness, and the confidence to take chances.” While a prevention focus “is good for many things — careful planning, accuracy, reliability and thoroughness,” it’s a promotion-focused approach that helps build opportunity recognition skills. You can learn how to hone those skills here: hbr.org/2013/05/how-to-get-better-at-spotting.
• Conduct a feasibility study of the growth model (including a budget) you’re considering to find out what pros, cons and potential outcomes are likely for your situation. This might include running small-scale tests. Our Saskatchewan farmer says that in order to find the sweet spot of where you’re comfortable on the growth scale, you’ve got to test an idea, adjust, and scale up or back until you get it just right. Both Terry Kash and David Madié agree: try things out on a small scale and scrutinize feedback and numbers before going all in.
• Drink beer. Well, grab a bottle (or a coffee) with farmers you know who have successfully scaled up their businesses. They’ll be able to offer a lot of insight not only through a lens of success, but a lens of failure. Finding out what they would have done differently will help you make more calculated choices.

April M. Stewart is the owner of Alba PR, a brain-to-brain communication design firm, and the creator of “The Farmer’s Survival Guide: How to Connect With 21st Century Consumers,” a blog and workshops which look at communication impact boosters. She is also a sixth-generation Quebec dairy farmer, president of Canadian Young Speakers for Agriculture and a member of the Canadian Agri-Business Education Foundation board. You can find her on Twitter under @FarmersSurvival.

The post You want to grow your farm business. But how? appeared first on Country Guide.

This revolution will bring risk, and it will bring opportunity. And, for sure, it will bring disruption. It will change what it takes to be successful, both for farmers and for the companies they do business with.

It’s already got companies looking for new partners, worried that there’s going to be a boom in intelligence-based support services to farmers, and that they’ll be left watching from the cheap seats.

Imagine yourself in a corporate boardroom. In such a high-stakes game, how would you pick the winners to align yourself with?

That’s exactly the question that’s getting asked in boardrooms across the country.

Next, in many boardrooms, comes silence. But not in all.

How will companies adapt to a marketplace where farmers are so much more powerful than ever before?

Wade Barnes is watching it as if it was his own ECG.

“Five or six years ago I didn’t know anybody who shopped on Amazon; today I don’t know anybody who doesn’t,” says Barnes, CEO and founder of Farmers Edge, a leader in precision agriculture since 2005.

“Who would have thought 10 years ago that huge businesses like Sears would be disrupted by online shopping?”

Now, a similar scale of disruption is coming to agriculture, Barnes predicts. And he knows he isn’t alone in thinking so.

“I think if you talk to any of the big agricultural companies, I would bet that the upcoming digital disruption is in the top three of their concerns, if not number one.”

Precision agriculture has become an accepted part of farming over the past few decades. But Barnes says that’s nothing compared to what we’re going to see in the next four years.

For its part, Farmers Edge has been getting ready. It’s been partnering with an array of different companies, from insurance provider Ag Risk Global Solutions to technology companies, including Raven, the Weather Company, and Planet, which has the world’s largest privately owned fleet of earth-imaging satellites.

Farmers Edge has also expanded into the U.S. as well as into Australia, Russia and Brazil. It has attracted investment partners, too, and also concentrated on offering “Smart Solutions” such as FarmCommand, its fully integrated, data management platform, Fleet Manager, and Insur-Tech.

“Whether it’s financial institutions, insurance companies, grain companies, seed companies, agronomists, retailers… they’re all going to have to figure out how they fit into this environment,” says Barnes. “They are going to have to change the way the business has been done for the last 30 years. Instead of the farmer asking the agronomist, ‘What seed variety do you think should I grow this year?’ all the yield data is flowing into the cloud and being processed, so a farmer can use an app to see his area and the best varieties that are being grown and the highest yields.”

In the 2020s, Barnes is confident digital technology will change every aspect of how farmers do business, how they buy seed, fertilizers and chemicals, how they do agronomy, how they borrow money from banks, how they utilize insurance, and much, much more.

For an example, Barnes points to Bayer’s outcome-based pricing pilot, being trialed with a limited number of farmers in the U.S. this year. With this model, Bayer sets an expected yield outcome for a product or seed, based on a farm’s data and history, which is stored on the company’s digital ag platform, FieldView, and its own product research data.

If the farmer’s final yield falls below the expected value, the company will rebate a portion of the original price of its product. If the yield surpasses the value, the farmer shares a pre-agreed portion of that additional income with the company, so that in essence the farmer and Bayer are sharing some of the risk of producing the crop.

It’s a model that is only possible because of digitization and the advances that have been made in access, collection and processing of the vast amount of data that is produced every day in farmers’ fields, research trials, laboratories and research institutions.

As more farm-specific information becomes available, it will create transparency for farmers and for the marketplace like never before. The industry will no longer have to rely solely on third parties, like insurance companies, banks, agronomists or retailers to give them information, which to date has rarely been based on anything better than regional averages or wide-scale trends.

Very soon farmers will have immediate access to data about their specific farm right down to the field and sub-field level. And the impact, says Barnes, will be to make farmers a lot more powerful in the supply chain.

“Very soon, a farmer will have as much information to make decisions on marketing as Cargill,” says Barnes. “Cargill for 50 years has known what the climatic conditions were in the Mondo Grosso of Brazil, and if the soybeans were poor, they were taking positions on canola in Saskatoon because they knew the oil market was going to go up. When farmers have access to that information, they’re going to be much more powerful on the marketing side, where grain companies then have to make their money off the utilities or the logistics they trade, not with market intelligence, and that’s going to be a huge change.”

Tough times for retailers

The digital disruption won’t be good news for everyone, especially wholesalers, retailers and consultants. To a certain degree, farmers have been price takers to date, but that’s going to change as they become increasingly connected to manufacturers, seed and input and other primary agricultural companies, and as the supply chain shortens.

In today’s world, a seed company or input manufacturer sends its products to a wholesaler, who sends it to a retailer, who then sells it to a farmer. The insurance goes with equipment manufacturers, who sell to farmers through dealerships. The value of these third party agents, and also of the agronomists working for ag-retailers, is that they have traditionally been the ‘experts,’ i.e. the people with access to the detailed specifications and information on the products they sell, along with local knowledge about farming conditions and practices in their area, so farmers have had to rely on them to figure out what products are the best fit for their farm.

“When the farmer becomes completely digital, the connectivity to the third party becomes less important because the manufacturer, or the primary companies, now have the knowledge and the understanding of the customer that those third parties always had,” says Barnes. “If I’m a seed company, I need the local agronomist to tell me which varieties are going to work in that area or help the farmer make a decision of what’s going to work on his farm. Well, suddenly when those companies have that connectivity directly to the customer, they know when they plant, how much fertilizer, what the yields are, what their soil conditions are. Suddenly now that changes things and 10 years from now, I think you’ll see situations where John Deere or Bayer have a more direct relationship with big customers.”

Pipeline to the consumer

Connectivity isn’t just going to link farmers to their suppliers, banks or insurers, though. It’s also going to connect them more directly and immediately to consumers, which Barnes sees as another huge opportunity for farmers to seize the driver’s seat.

“With digital capability farmers can tell Mr. Consumer how much fertilizer was used on the field, when they sprayed and what they sprayed,” says Barnes. “They can provide their carbon footprint, and trace the product all the way back to the field. That’ll be game changing. People have been talking about this for a long time, but it’s happening now.”

The role for agronomists, at least initially, will be to help farmers make their digital transition, Barnes believes.

“They are going to be there to help the farmer trust the product,” he says. “A retail business may be hiring a data analyst to crunch the numbers and to showcase that in presentations to the grower, rather than having an agronomist go out and check weeds.”

There is no doubt in Barnes’s mind that the industry is going to change, and rapidly, and although he admits that scares a lot of people, it’s really a question of recognizing that it’s coming and working proactively to stay ahead of the game.

It’s time to get on board, Barnes says.

“What I found with technology, if you come late to the party on a disruption, once you realize you’ve been disrupted, you can never fix it,” says Barnes. “It’s like a torpedo ripping through a ship. You can’t fix the hole. It’s too late, the water is coming in.”

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