SWIFT CURRENT, Sask. — Farmers with a written business plan average returns on their assets five times higher than those who don’t put pen to paper.
It’s not a new statistic, but one that was driven home for those attending Farm Credit Canada’s youth summit here earlier this month.
Erin Cote Blaquiere, representing Farm Management Canada, said a survey conducted by the organization found 75 per cent of farmers experience chronic stress and are overwhelmed due to uncertainty and lack of control. Younger farmers feel even greater stress because of two additional factors: maintaining the family farm and farm team harmony, and farm transition, she said.
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“If you use a written business plan, you’re going to experience reduced stress and anxiety. You’re going to follow other beneficial management practices like talking to your lenders, talking to an accountant, talking to maybe a mental health professional if that’s the one you need in your life,” she said.
A written business plan encourages more effective coping mechanisms and results in a more profitable business and a more confident operator, she said.
Mark Verwey, national agriculture industry group leader at BDO Canada, said he often hears from producers that they run a farm, not a business, but that is changing.
Often, small businesses, defined as one with fewer than 50 employees, fail because the owners didn’t realize how many hats they had to wear. While small businesses may consider bankruptcy as failure, Verwey said farm failure can be defined as not achieving the farm’s greatest potential or profitability.
He used the example of a producer who had to sell land to pay off his input suppliers as failure because the farmer was sacrificing capacity to meet debt.
Verwey defined the hats as roles and responsibilities; producers wear seven of them.
“The more hats you wear, the more you resemble a business and the more you should act like a business,” he said.
Fifty years ago, the only hat farmers wore was producer.
“You produced a crop, you sold it to the local market and you made a good living,” he said, compared to today’s competitive global environment.
The marketing hat is one farmers should always be trying to improve because the margin of error is so small after buying inputs at retail and selling at wholesale.
The third hat is finances — managing debt, profitability and cash flow, and the fourth is cost of capital.
“That’s maximizing the return on your dirt, buildings and iron,” Verwey said.
Capital purchases on farms can cost millions, and farmers have to be sure they’re making the right decisions, he said. The cost of capital should be around 20 per cent of revenue, including depreciation, interest, repairs and maintenance.
Verwey had one client at 40 per cent.
“They were just bleeding cash because they had these huge leases,” he said.
“It took two or three years for them to rectify that situation and turn their operation to profitable.”
Human resources is the fifth hat, and Verwey said this is difficult because in addition to managing labour, a family farm involves managing feelings.
The sixth hat is sustainability and environmental, social and governance (ESG), which is relatively new but increasingly part of the business. For example, there are now environmental plan requirements to participate in AgriInvest at the maximum level.
The seventh is innovation and technology, including artificial intelligence, which is changing agriculture around the world.
“You are more like a business than most businesses because your hats are bigger,” Verwey said.
One of the best ways to handle the stress of wearing all these hats and the uncertainty of farming is to formalize processes and write them down.
“Create small actionable steps in your process and celebrate success,” he said.
“You want to create a feeling of control because control trumps stress.”
Businesses generally follow a process that starts with defining values, determining what success looks like, developing a vision and then developing a strategy with tactics.
For young farmers, the definition of success could be maintaining a family legacy, said Verwey. The vision should include what the farm will look like in perhaps 10 years.
“Your farm is going somewhere, but are you in the front seat or the back seat?” he said.
The strategies should focus on the seven hats and tactics under each of them. He said focus first on the strategies that will have the greatest impact and are easier to implement.
He and Blaquiere both said treating a farm like a business should mean having regular meetings, perhaps monthly, to assess progress on the written plan. The meetings don’t have to be long but should focus on key financial results, whether the business is meeting its vision and any issues that have arisen.
Small changes can lead to big improvements, Verwey said.
“Change is inevitable, growth is optional,” added Blaquiere.
Contact karen.briere@producer.com
