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As your busy season begins to ramp up and mine winds down a bit, I thought I would take a few moments to share some commonalities that have been flushed out through my discussions and meetings with farm families during the winter. The following are a few of the main questions, areas of concern and things that you can do to address these issues and manage risk.

1. What’s happening with Interest rates?– In short, they are likely going to continue in an upward trend with at least one if not two rate increases of 0.25% percent, with the first increase happening as early as July. Allotting some time to credit portfolio management will likely pay significant dividends over the next 10 years. Ensuring your credit portfolio is structured appropriately, to allow for appropriate timing of cash flow, and aligns with your expected profitability on an average forecast basis, may pay off in reduced interest costs, improved working capital, advantageous marketing strategies and reduced stress load. If you are planning a change in your operation, such as an expansion, large capital purchase, farm transition, etc., taking a pro-active approach to your credit portfolio management now to allow for these changes to occur comfortably will provide you with peace of mind and create a foundation for your farm operation to remain healthy throughout and after that change. You may also be able to re-negotiate existing terms prior to their maturity date and lock in rates now for longer terms before they go up further. Interest rate risk mitigation, by locking in rates and laddering interest terms on long-term debt, is one way you can manage your interest costs now and in future years.

2. How much should I pay for land rent? How much can I afford to pay for land? Should I grow crops or forage?– The unhelpful answer is…I don’t know, but it is critical that you know. The answer lies in your own farm profitability on a per field or soil type basis. Completing a cost of production and profitability calculation is the only way that you can know if your operation is profitable on a per field basis and will provide you with the information you need to make the appropriate business decisions based on your goals and targets. A whole farm enterprise profitability analysis is a good place to start and then drill down into each field or soil type by commodity. There are free apps available, such as FCC Field, to help you collect your crop input data while you are in the field to be used in your analysis later. Both the MB and SK government websites have calculators that can help you with the analysis on a per commodity per field or soil type basis. An advisor that specializes in farm financial management can assist you with your whole farm analysis and provide you with the information you need about your farm financial situation.

3. Working Capital– To be in a financially healthy working capital position you should have at least 50% of the coming year’s operating expenses covered by your own working capital (cash and/or marketable assets that will soon be turned into cash minus debt payable within one year including current portion of long-term debt) at the beginning of the productive season. Have a strong working capital position allows greater flexibility with commodity marketing, ensures adequate timing of cash flow commitments, reduces interest costs, improves your relationship with your primary creditor and significantly reduces stress on management. In addition to your own working capital a detailed analysis of all your sources and uses of cash, including credit, will give you the full picture of your situation and provide you with the information you need to make changes if necessary. Working capital situation should be considered in conjunction with the overall creditor portfolio management and any expansion or transition plans. A farm financial management specialist can assist you with your working capital management and help you create an improvement strategy if required.

4. Cash flow– Knowing your cash flow situation at least 12 to 18 months in advance provides you with the valuable information you need to assess your cash situation and deal with timing issues well in advance of them occurring, align new or existing loan payments, create a marketing plan that aligns with your commitments, plan to strategically deal with surplus cash flow. Analyzing your cash flow situation should be done in conjunction with your working capital situation, your credit portfolio review and prior to any additional cash withdrawals, down payments, new loan payments, etc. Your Financial institution or farm financial specialist may be able to provide you with a cash flow template to use. Start with a whole farm historical and forecast analysis of cash inflows and outflows and then drill down into the month by month analysis. Previous year’s cash flow from your accounting program will be helpful in creating your cash flow projection. A farm financial specialist can help you make sense of it all if you need assistance.

5. I don’t know if I can, or how I will transition from the business? - This is a big problem! Start with figuring out what your cost of living will be and what lump sum cash amounts you need/want in your retirement years and where this money will come from. As Dr. David Kohl stated, when 50% of the transitioning generation’s income comes from off-farm sources the transition will be more successful. So…get a good portion, or all, the money you need to live on throughout your retirement years, out of the farming corporation on an annual basis well in advance of your planned transition period. This will allow you to plan your drawings at a lower personal tax rate while not strangling the farming corporation and the new management’s ability to operate comfortably. There are tax efficient ways to invest your hard-earned dollars personally, or outside of what is needed for operations, depending on your structure. A financially healthy farm operation is critical to the success of a transition plan and it is never too early to start planning your exit strategy. The earlier you start the more options you have, the less tax you will pay and the greater chance that the transition will be successful for the next generation. Your accountant, tax specialist, retirement planner, financial planner, farm management consultant can all assist you through this process.

If you have any questions or concerns about the management of your farm business, please don’t hesitate to contact me.If you have any questions or concerns about the management of your farm business, please don’t hesitate to contact me.

Ships that pass in the night, and speak each other in passing,

Only a signal and a distant voice in the darkness;

So on the ocean of life we pass and speak one another,

Only a look and a voice, then darkness again and a silence.

“Tales of a Wayside Inn, “Henry Wadsworth Longfellow

Although these lines written by Longfellow in 1863, in the middle of the American Civil War are meant to describe the relationship between two regions of a nation, they also describe the relationships within a family business where there can be many instances of similar passing “in the night”.

Unspoken assumptions between generations often include thoughts like: “If they’re interested they will ask and take things over”; “If they want me to know they will tell me”; “They will ask me if they want me to do it”; “I don’t want them to think I’m pushing them out”; “I don’t want to say something that might create conflict.” Unfortunately, these assumptions often live in the dark shadows of a family and can go on for years, resulting in communication that is reduced to the bare necessities of day-to-day operations and/or polite discussion in-order-to keep the peace and avoid conflict.

As written by author, consultant and professional mediator, Lance Woodbury, “when it comes to family businesses, management, succession and estate planning, the conversational dance that occurs between generations can be downright frustrating”. In addition to creating a time and space for safe and open discussion, consider these discussion topics to help get the conversation flowing, create clarity and dispel some of the myths, fears and misunderstandings that may be lurking in your family and business.

Gaining clarity around the Three Circle model is a great place to start discussions. Knowing where everyone fits now and what the thoughts and opinions for the future structure are, takes the assumptions and the guessing out of the equation and lays the foundation for constructive communication and forward planning.

It’s vitally important that every family member has the opportunity to clearly identify and communicate their personal, family and farm business goals, and have these understood and respected by the family. Not only can it create an environment of understanding, but also creates a baseline for designing the right solutions within the family business for the individuals and the business.

Within a farm family business, it’s important that members understand where they agree and disagree. Understanding the perspectives of others, promotes tolerance and accommodation. Recognizing differences in personal values between the family management team will set the tone for how you will:

• make management and investment decisions

• manage together as a group

• allocate tasks and responsibilities

• deal with conflict

The conversations that flow out of the above discussion topics, can be risky, but are essential. Without them, people make assumptions, which often lead to conflict that the silence is intended to avoid. When it comes to family business decisions regarding ownership and management, don’t let your family “pass in the night”.

Denise Filipchuck,consultant associate at Backswath, is a Financial Management Specialist, a Certified Financial Planner (CFP) and a Certified Agriculture Farm Advisor (CAFA).

Mobile: 204.281.3828


A recent report commissioned by the Agri-Food Management Institute and Farm Management Canada shows taking care of business leads to success for farmers. The results identified the Top 7 Practices that drive Farm Financial Success. So, what does this all mean and how can you implement these practices on your farm, while ensuring you are working on what is most relevant to your situation and in the most cost efficient manner for your limited resources? The following points are the 7 practices, highlighting ways that you can incorporate these practices in your farm business management strategy to achieve high performing results.


1. Never stop learning

The winter season is the perfect time of year to attend industry sponsored events and trade shows that offer a wealth of relevant learning opportunities at very little to no cost. Many learning institutions offer agriculture and business related on-line or correspondence courses, that you can register for on your time schedule and gain the specific learnings that you require. Use a Management Assessment, that has very little to no cost and requires minimal time, to take stock of your management team’s opinions regarding financial management, human resource management, operations and marketing, to get an understanding of what you feel you are doing well, where your challenges are, what you have questions about and where your management team has differing views in each area. This exercise will highlight areas that you may want to, as a management team, prioritize and allocate resources to improving, or learn more about.

2. Make business decisions using accurate financial data.

Being able to understand and review your financial statements is vital to your business’ success. From that information you can analyze and review historical data and ensure you have high integrity financial statements prepared in the format (accrual or cash) that you require to make your business decisions. Completing annual market value net worth statements dated to match your income statements ensures you have information that is accurate and current for your purposes, and will allow your creditors and advisors to provide you with the best advice and services for your situation in the most efficient manner and thus likely reducing your overall cost of fees and interest rates. Your accountant in combination with your business advisor or consultant can help you ensure you are getting the information you need, in a format that you can understand and use, that is most beneficial for your business.

3. Seek the help of business advisors/consultants

Many farmers take pride in being the “Jack of all Trades”. While this is very honorable, and necessary in many areas of farm management, everyone has areas of strengths and challenges due to skill, knowledge, time, etc. Identifying these areas and seeking assistance from professionals that specialize in the areas you find challenging can significantly improve your profitability and overall satisfaction and success. Canadian Association of Farm Advisors (CAFA), SK AG Farm Business Development Initiative (FBDI) and the Financial Planning Standards Council (FPSC) all have contact information for advisors, planners and consultants that have achieved certifications and registrations through a required level of training, education and associated experience, on their websites.

4. Have a written business plan, follow it, and review it annually

A business plan can mean many things to many people, can range from a few pages to a hundred or more and the costs can vary significantly as well, so ensuring you are creating the right type of business plan for your situation and budget is very important to ensuring you are getting the value you require. The size of your farm, the level of debt you have, or are requesting, and your plans for growth or transition, will all factor into the resources you may want to allocate towards a business plan. Key components to consider and include in your preparation of the business plan are: personal, family and farm business goals; guiding principles and strategic direction; farm business vision based on your personal, family and business values; and specific growth, transition or structural plans. This an exercise that farm management teams can largely do on their own in many cases depending on the level of detail required, however your advisor or consultant can help establish the frame work and/or assist in the development of the business plan or in cases where a more sophisticated plan is deemed necessary.

5. Know and monitor your cost of production and what it means for your profits

There are many tools available that can help you complete a cost of production calculation. Both the Manitoba and Saskatchewan Governments provide templates with relatively easy to follow instructions on their websites. Once you have done the work to ensure you have high quality and current financial information to work with, you can pull that data into your cost of production calculations to assist you with decisioning your cropping and marketing plans. Your business advisor or consultant can help you prepare, review and discuss the cost of production worksheet, if you need assistance in-order-to obtain the most value for your efforts.

6. Assess risks and have a plan to manage and mitigate risk

Identifying and assessing the risks associated with your business are essential in being able to pro-actively manage and mitigate those risks and put measures in place to deal with issues if the worst should happen. Creating and then reviewing your business and financial plan annually will allow you to revisit those identified risks, identify any new ones and adjust your risk management strategy accordingly. Your financial advisor or consultant can assist you with risk identification and mitigation strategies as part of your annual review.

7. Use a budget and financial plan to monitor financial position and options

Creating and annually reviewing your financial plan and budget allows you to keep your finger on the pulse of the financial management of your business and allows you to pro-actively make adjustments as required in order to successfully weather financial storms. Key components to include in your financial plan are: Financial Targets; Capital Budget Plan; Scenario Development and Impact Analysis, based on your historical financial performance that considers a sensitivity analysis for associated risks; Monthly Cash flow analysis for 12 to 24 months; Credit portfolio structure including details regarding the credit facilities arrangements and terms. Your financial advisor or consultant can assist you with ensuring you stay on track with your financial plan during annual, semi-annual or quarterly meetings as required for your specific circumstances.

Denise Filipchuck, consultant associate at Backswath, is a specialist in Financial Management, a Financial Planning Standards Council (FPSC) Level 1® Certificant and a Certified Member of the Canadian Association of Farm Advisors (CAFA).

Mobile: 204.281.3828

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