In this day and age, the skill set demanded of farm managers is tremendous: financial management; strategic planning; accounting; agronomy; human resources; marketing; information technology management and support; equipment repair, the list goes on. There is no one manager out there that fits the bill on all accounts. Not to worry, there is no end to the consulting or professional services available to farm managers, but most of these good quality services are as free as anything else in life, as in, they aren’t.
STRENGTHS AND WEAKNESSES
It’s crucial to maximize the return on every dollar spent. A very common thread amongst successful farm managers is the ability to identify the gaps in their management and then fill those gaps by either furthering their own training, designating someone to the task or management area or securing the skill set through the hiring of professional support.
We took this opportunity to work with our new client, Gonah Passondefarmski, to help him clearly understand where he may have opportunities to see a good return on dollars invested in consulting services. Passondefarmski moved to Canada four years ago and farms 3,500 acres with his wife, son, and recently added daughter-in-law. We asked him to indicate who he has chosen to involve in his farm management support team at which time he indicated the following:
Accounting: Neighbour’s wife does income tax for a few locals — very affordable. Passondefarmski’s wife does all of the farm’s accounting
Agronomy: Local agronomist
Marketing: Local elevator
IT Support: Local dealership. No high speed internet yet
Financial/Strategic Planning: Local credit union account
Right Choice Management Consulting (Just hired)
THE BEST FIT FOR EACH JOB
After much discussion and some review of Passondefarmski’s financial statements, it was pretty clear that he has a number of opportunities to enlist the services of others to further the performance of the farm.
Passondefarmski is on the verge of a farm transition and that process will include complicated tax management and succession plan strategies. An accountant well-versed in small, family-owned corporations is going to be crucial in order for this transition to be completed efficiently. If the cost of hiring a strong accountant is $2,000 more than his current accountant, we calculated that he only needs to reduce his tax by just over one per cent on his anticipated net income stream in order to pay for the additional cost.
Passondefarmski’s wife currently does the accounting for the farm but to streamline communication, they would like to have the books done on the computer. There is a local book keeper that will do this for $250/month, but Passondefarmski also indicated that his new daughter- in-law is interested in taking a farm management software course and doing the accounting. The cost of this course is much less than the anticipated $250/month and any gaps in understanding can be quickly filled with the experienced accounting firm.
Passondefarmski has used his local agronomist for pest management advice for his crops. The volatility in the fertilizer market has resulted in widely fluctuating fertilizer costs, and he is recognizing that variability through his yield mapping is significant. We indicated two options may exist for him to work more efficiently here. He can hire the services of a precision agronomist to help him do some zone soil sampling and the prescription nutrient mapping work. At a cost of $6 per acre, we estimate that he will need to see an 8.6 per cent drop in fertilizer usage or else an increase in average yield of 2.2 per cent to pay for these services.
The other option that exists is to use our strategic planning services to carefully plan cash flow such that he can maximize input purchase opportunities and avoid forced commodity sales at inopportune times. We see a wide range of more than 25 per cent in efficiency due to poor or no monthly cash flow planning and only half of one per cent improvement in efficiency would cover the cost of some strategic planning services. A five per cent improvement in efficiency would result in a 10-fold return.
Passondefarmski has identified an obvious gap in his commodity marketing skills. Our suggestion to him is to gather market information as affordably as possible from a market advisory service and task his son with developing weekly marketing reports for the farm going forward. This will require the installation of high speed Internet.
Finally, the need for Gonah Passondefarmski to clearly communicate financial management going forward will be crucial. He is planning to expand further as the next generation joins the business which means leveraging some of his existing equity with lenders. He will need to ensure understanding by his lending partners and encourage careful planning internally with his expanding management team. A fraction of a percent savings in interest charges due to financial structure or avoidance of any high cost trade credit from careful planning can result in a sizeable return on some financial and strategic planning services.
We all have shortcomings and our ability to recognize, prioritize and strategize to fill these gaps will ultimately yield the highest return on your consultant expenditures.
AndrewDeRuyckandMarkSloane managetwofarmingoperationsinsouthern ManitobaandarepartnersinRightChoice ManagementConsulting,offeringsupportin farmmanagement,financialmanagement, strategicplanningandmediationservices. Theycanbereachedat [email protected] and [email protected] or204-825-7392 and204-825-8443