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
denise@filipchuckmanagement.com