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How A Young Farm Family Can Succeed

Farms are unique entities in that they combine a rural lifestyle and a business enterprise at the same location and at the same time. That has its advantages and disadvantages. Family members are always close to the business but the business and all its challenges is always right there also. Both of those parts (the lifestyle and the business) must work together harmoniously for a farm unit to function well.

Ideally, farms should be fulfilling and flourishing places to live and work. Fulfilling refers to the lifestyle part and flourishing refers to the business part.Here are some of the lifestyle elements of a fulfilling farm:

Allows individual members to achieve their personal goals to some degree.

Allows the family to achieve its goals to some degree.

Allows for time off from the farm business for outings and vacations.

Allows time for hobbies, community, church or other benevolent activities.

Allows for freedom from mental and financial stress.

Here are some of the financial elements of a flourishing farm:

Provides money for the lifestyle desired by the family members.

Provides enough income to “pay the bills.”

Provides enough income for “good” financial results based on accrual accounting.

Provides for an increasing net worth of the operation.

Provides for a reasonable Return on Investment (ROI) and Return on Assets (ROA) of about five per cent.

A good way to create a fulfilling farm is to meet with all family members regularly and discuss personal and family wants, desires, accomplishments and challenges. You start by seeking agreement upon personal and family goals. Once that is done, members who are mature enough to understand the business aspects of the operation should do the same for the production and financial sides in order to develop a business plan. Ideally the business plan will be able to accommodate all the personal and family needs and some of the desires. If not, some adjustments should be made.

Families at different stages in life will naturally have diverse personal, family and business goals. Let’s look at one of those stages and the goals and financial challenges they might have:

A young farming family of a mother and father (20 to 40 years old) with two young children (up to 16 years old). As this family is basically in the “startup” phase of their farming careers they will probably have a high debt load for land, machinery and/or livestock.Personal goals for the parents at this stage might be:

Short term — some free time for themselves.

Medium term — time and money for self-improvement, hobbies, etc.

Long term — time and money for personal and business improvement courses.

Possible family goals:

Short term — a community activity at least once a month.

Medium term — a family vacation at least once a year.

Long term — saving for the children’s secondary education.

Business goals:

Short term — meeting the financial requirements of the personal and family goals as well as all business costs and still make a profit.

Medium term — examining the size and scope of the operation

and adjust as desired or as dictated by circumstances.

Long term — retiring by selling the farm or developing a succession plan.

Typically, it’s a challenge at this stage to find quality family time as typically the parents are working hard on the farm and one or both of them may have off-farm employment. However it is important to set aside some time each week, even if it’s only having a meal at a restaurant in town. Similarly there should be a monthly family activity and an annual family vacation.

DEBT AND CASH FLOW MANAGEMENT

The main financial challenges at this time will likely be servicing the significant debt load, as well as meeting all the operational expenses and still trying to make a profit. Total debt (short, medium, and long term) should be about 25 per cent of total assets and never more than 40 per cent. The main long-term debt should be for land which is usually an appreciating asset. Purchases of depreciating assets such as buildings, machinery and especially “toys” (e. g. quads, boats, snowmobiles and motorhomes, fancy trucks) should be kept to the absolute minimum. For a grain operation, a good rule of thumb is to have about $250 to $300 of machinery investment per cultivated acre. A good computerized accrual accounting system and someone to enter and manage the data is a basic requirement. Data has to be entered at least once a month so monthly and year-to-date income statements can be produced.

Managing cash flow will be another challenge. Is there enough money each month to pay the farm bills, including loan payments, and household expenses, as well as having some left over to offset depreciation, for profit and for “mad money?” A farm has to stay within the line of the credit limit set by its financial institution and/or grain advances.

Before making any significant new purchases, a careful analysis should be done of the existing financial situation to determine if the new purchase will “fit in” financially. For example, will the operation be able to meet its debt servicing obligations with the new purchase as well as all its other expenses? Can the new payments be accommodated in the cash-flow? To answer these questions, it will be helpful to enter all the farm’s financial information into an analysis and forecasting program such as ABA (Agricultural Business Analyzer. Find this at: www1.agric.gov.ab.ca, click on “Decision making tools,” then on “Farm Management” on the left-hand side.) Once the farm’s data is in ABA, it is also possible to run “what if” scenarios for other alternatives. With so many demands on a farmer’s time and talents, the challenges can be overwhelming. So it’s a good idea to concentrate on the tasks that you like to do and that you are good at and get help in other areas.

No matter what stage of life you are in, the above recommendations can help you to develop a fulfilling and flourishing farm. Start with family meetings to get input from all members about their aspirations and then try to incorporate them into your farm business plan. Get the help of a consultant if you don’t feel comfortable doing that on your own. For one in your area check the CAFA (Canadian Association of Farm Advisors) web-site at http://cafanet.com. It’s been said that many young people leave the farm because all they remember is the hard work. Make time for personal and family activities so you too can have a fulfilling and flourishing farm.

ArtLange,P.Ag.CAFAisaprofessionalfarm businessconsultant.Heisaprofessional agrologistandmemberoftheAgBusiness Consultantsgroupwhichisachapterwithin CAFA.Contacthimat: [email protected] or phone780-467-6040

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Ideally, farms should be fulfilling and flourishing places to live and work

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