Production often overshadows economics when it comes to planning for the year ahead, but careful financial projections make a big difference to the bottom line and are well worth the investment in time.
This is the message that Leonard Piggot will deliver to Manitoba producers at a financial planning workshop Feb. 21 and 22, 2013 at the Brandon Research Centre. Piggot, a producer himself and holistic management instructor from Dysart, Saskatchewan, has led a number of similar workshops for Manitoba and Saskatchewan producers to introduce them to a financial planning system which incorporates the concepts of holistic management.
“Recent emergencies like the flooding of 2011 and the drought of 2012 have made a lot of people realize they have few contingencies in place to cover additional expenses or reductions in income that such events cause,” says Piggot. “The workshop is a great place to start learning how to develop a cushion against these kinds of emergencies.”
It begins, says Piggot, by turning conventional wisdom on its head. Instead of starting with a plan that deducts projected expenses from income and show what’s left, the holistic financial planning approach takes a gross revenue figure to start, deducts the desired profit margin off the top and then allocates the remainder to expenses. “A core holistic goal is to be profitable,” says Piggot. “So you need to turn a psychological step into reality and take gross income and decide what you want your profit percentage to be.”
The premise is that if a producer focuses too much on expenses he will prevent himself from increasing profit. “It sounds simple,” says Pigott. “But it’s a big transition in thinking for a lot of people.”
The planning process Piggot covers will help producers predict their annual income and expenses for each farm operation, such as livestock, crops and other enterprises. A cash flow is developed from these enterprises, which forms a blueprint against which actual monthly incomes and expenditures can be compared. The idea is to avoid the “squeeze” of unexpected cash shortfalls by where incoming cash may not meet outgoing expenses, so farmers can proactively decide if they need to reduce expenses or borrow more money ahead of time.
Planning should be about more than immediate cash needs, says Pigott, and decisions should meet criteria based upon core holistic principles of lifestyle, protection of the resource and production sustainability.
Although some expenses are fixed such as loan payments and land taxes it’s “wealth-generating” expenses which should get the most attention, says Piggot. He cites an example of costs to fence land into paddocks for planned grazing that increases the carrying capacity of the land. “That’s a wealth-generating expense,” he says.
Piggot estimates that fewer than five per cent of farmers go through a formal financial planning process, which is why he encourages farmers to attend these workshops and learn how to help themselves become more profitable.
The workshops are funded though the Agri-Extension Environment Program, an initiative of MAFRI (in co-operation with Ducks Unlimited Canada, and the Manitoba Forage Council), which aims to encourage the adoption of environmentally sustainable agricultural practices.
The two-day course provides a frame work that producers can take home and apply that helps them better manage the financial aspect of their operations. “Over the two days the attendees will develop complete, profitable financial plans for 2013,” said Piggot. “They will be based on their own operations and goals and they will learn how to track their progress using cash flow projections throughout the year. They will be able to see how profitable their operations are and the steps they need to take to maintain or increase profitability.”
To receive information about the upcoming workshop in Brandon in February or to register email Michael Thiele, grazing club co-ordinator at: [email protected] †