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Three Steps For Making Better Business Decisions On The Farm

In the first article of this series (see February 28 issue), we stated that farms are unique business entities in that the needs and wants of the farm family are closely interwoven with the needs and wants for the business. We stated that, ideally, farms should be fulfilling (i. e. meeting the needs and some of the wants of the family) and flourishing (i. e. meeting business goals) places to live and work. So when it comes to making decisions on the farm the two elements also have to be considered. It can be difficult (but not impossible) to reach decisions that will serve both the needs of the family and those of the business. Communication and planning are key elements to make the process work harmoniously.

If the family has met and developed a business plan (short and long range) the process is much easier since the overall direction for that part of the operation is known and has hopefully been agreed to. Typically there are three phases to a family farm business:

START-UP PHASE

The business decisions at this stage concern what to produce, how much, how and when to market, profitability, access to funds for operational expenses and capital purchases, cash-flow issues etc. There is a basic family decision to make at the outset of whether to farm alone or cooperatively with other family members (parents, siblings or extended family). Where to live and the quality of the accommodation usually becomes and issue for the wives. Some other family and personal issues are when to start a family, finding time for the family as well as all the business demands, time for hobbies, self-improvement, community and industry activities etc.

OPERATING PHASE

These are usually the most productive years with less financial pressure. The financial emphasis should be on debt reduction and setting a limit to the size of the operation. Farm families should ask themselves, “how much land is enough?” or “what is our ideal livestock number?” and try to come to an agreement on those basic questions. Planning for retirement should begin by starting a retirement account that includes liquid assets, like redeemable GIC or other investments, so capital assets, such land, machinery or inventory, don’t have to be sold on short notice if there is a demand for cash. Family decisions are less pressing if the children are mostly grown up. There should be more time for leisure, hobby and community activities, and maybe even a winter holiday. Grandchildren will come into the picture at this time and it is an excellent opportunity to nurture and mentor that generation since their parents will be very busy trying to make a living and having some free time of their own.

RETIREMENT PHASE

These should be the least stressful and enjoyable years of the farm family’s life since debt should be minimal or non-existent. There should be adequate assets (capital and liquid) for an enjoyable retirement. The question is usually how and when to “wind down.” Expert advice from accountants, lawyers and retirement planners should be sought to properly manage this phase. Family members should “enjoy the fruits of their labours” by doing some activities that they may not have had time or money to do such as going on a cruise, taking a winter holiday or even living in a warm climate for the winter. Start early by having some interests and activities outside the farming operation because there may come a time when you can’t farm any more.

Each phase of a farmer’s life still requires many decisions to be made for the individuals, the family, the business and combinations of all those. Some of the decisions will depend on personal and family preferences, some will by dictated by finances and all should be considered in terms of the short and long term needs and wants of the family and the business. Here are some steps that may help to make decisions:

1) Brainstorm session

Present the matter to be decided by “putting it on the table” and inviting all the people to be involved or impacted to a discussion. Invite participants to “brainstorm” whereby they voice ideas and preferences on the matter but makenojudgements anddo notcome to conclusions. Someone should make notes of the main ideas presented for the Discussion and Decision Stage (below).

2) Exploration

At this stage, someone is assigned to gather information on the matter and develop a “pros” and “cons” list and determine how the matter fits into the overall business plan and/or family goals. Outside help may be required to analyze the farm’s financial situation (with and without the change) if major purchases such as land, machinery or new housing are involved. For a list of consultants in your area, see the Canadian Association of Farm Advisors (CAFA) website at http://cafanet.com/Consultants can also provide ideas and insights about alternate courses of action and can “chart” those by preparing “what if” scenarios.

3) Discussion and decision stage

All relevant information is brought to the table for all to consider. Two basic questions should be asked “do we have enough information to make an intelligent decision?” and “are we all comfortable to make this decision now?” If the answer to either of those is “no” or “I’m not sure” then it’s probably best to delay making that decision.

In some cases, even after following the above steps, there will not be clear direction as to which way to go ahead. For example, the husband may want to buy a new combine (and he can make a good case for that) and the wife wants a new house (and there is need for that) but the farm’s finances can only accommodate one of these major purchases. In this situation it’s helpful if one partner can say to the other “I’m willing to let you buy a new combine if you agree that our next major purchase (when our finances permit) will be a new house.” In other words, sometimes it’s just a matter of give and take among the family members since the farm’s finances usually can’t accommodate several major purchases at the same time. Seeking the assistance of a trusted counsellor may help to mediate this dilemma.

ArtLange,P.Ag.CAFA,isaprofessionalfarm businessconsultant.HeisaProfessional AgrologistandamemberoftheAgBusiness Consultantsgroupwhichisachapterwithin CAFA(CanadianAssociationofFarm Advisors).Hehasworkedwithfarmersin variouscapacitiesfor30yearsandasafarm businessconsultantforthelastsixduring whichhehashelpedover100familieswith theirfinancialissues.Hecanbecontactedat [email protected] orphone780-467-6040

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