OLDS, Alta. – A farm’s management style may determine whether a child
returns to the family business or walks away with a pocketful of
resentment.
“The farm is your children’s first business school,” said Dick Wittman.
Most people know how to manage a farm in theory, but few have the
discipline to write operating plans or encourage open communication
among partners, said the Idaho-based farm consultant. Wittman farms
14,000 acres with a brother and cousin.
“Every farm has a management system. It may be lousy but it’s there,”
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he told farmers gathered at Olds College for a farm business management
seminar.
A willingness to co-operate and stay disciplined has seen the Wittman
family through a reasonably smooth transition when their father moved
off the farm in 1984 and later when a brother died.
Naysayers told them they could never make a family deal last. Siblings
may work well together but when spouses and children become involved,
the operation is liable to collapse.
Wittman said there are basic steps to make a multi-partner farm
enterprise work.
The first is to establish a mission statement for the business.
“How can a team pull together without a clear consensus on basic
objectives on the farm?”
It can be a short sentence but it should state the operating philosophy
and core values of those involved.
For many, the fundamental goal is to build a profitable business where
the partners do not end up hating one another. Many multi-partner farms
fail because members do not commit to a business plan, cannot get
organized, don’t divide responsibilities or pay out money fairly.
Plans must be talked through and accepted by all concerned people. They
must agree to bring in outside help like lawyers, accountants or farm
advisers.
Someone must have the authority to make final decisions. The president
of the operation is not necessarily the oldest son.
“Management is not always making decisions. It is deciding who will
decide,” said Wittman.
A good manager must divide responsibilities and give people enough
leeway to make decisions regarding their area of the business.
Wittman’s family drew up a flow chart of management duties as well as a
standard operating procedures manual and job descriptions. Performance
reviews of people and progress reports are part of the farm’s strategy.
People’s roles should take advantage of each individual’s abilities and
skills. In addition, less desirable tasks are divided evenly rather
than dumped on one person.
People must be accountable to the business and even though they are
family members, must understand they can still be fired.
Some operations like to manage by committee where everyone participates
in decision making. Wittman said this is inefficient and can lead to
poor results.
“We throw together a group of half-educated people and we get a
half-assed decision,” he said.
Management is responsible for setting the tone of the business. A good
manager outlines expectations including a ban on temper tantrums,
unprofessional or destructive behaviour.
Meetings are important because if any family member or spouse feels he
or she does not have all the information about decisions or finances,
the result is resentment and conflict.
Everyone should be invited to write out what their understanding is of
procedures on the farm. They should explain who they think pays for
housing, vehicles and utilities. Salaries, hours of work and vacations
must be discussed. Finally, the farm procedures and policies should be
written and a copy given to everyone.
“Usually people don’t have any problem with following policy if it is
written,” he said.
Hours of work and money are often the most contentious issues on a
large operation.
Wittman’s family bases hours of work on an individual working 270 days
a year. Time sheets are kept and salaries are calculated according to
hours worked, level of responsibility and tenure on the farm.
Wages often cause disputes. There may be an inequity between the
owners’ children and outside hired help. However, the family may pay
its own children more as part of a succession package.
Labour is part of a farm’s cost of production.
“Most farmers fail because they don’t understand cost of production and
what it costs to keep their families on the farm.”
They take for granted costs like housing, medical insurance, vehicles,
utilities, fuel, free meat and farm produce. On many farms these are
paid for by the enterprise, making it a disguised form of compensation
over and above what is paid as salary.
Dividing returns among managers and owners can be difficult. Figure out
non-cash benefits such as housing and vehicles, and then figure out
what the ownership share should be based on responsibility and tenure.
Many operations split money evenly among managers and owners but then
there is little incentive to invest further in the farm because there
is no real return on investment or incentive to try harder.
Another common mistake is grossly underpaying workers and giving all
the earnings to the owners.
Agreements are also necessary to deal with the unexpected.
If a partner dies or develops a disability or illness, care of that
person’s family is necessary. Some operations cut them off while others
feel guilty and pay too much. Figure out what the survivor benefits
should be and give them time to figure out what to do. Some may elect
to sell the spouse’s share or continue to play an active role in the
family business.
A written budget defines how money matters are handled and anticipates
results at the end of the year. It is important to figure out the
dollar implication of each decision in terms of profits, debt and
working capital.
Successful operations can actually have excess cash.
“If the business doesn’t need the money, you shouldn’t feel guilty
taking it out,” he said.
Strategic plans are needed. More abstract and flexible than yearly
operating plans, a strategy helps the farm contemplate its future
growth, estate and succession questions, buyouts, alliances, retirement
plans or value-adding ventures.
He suggests making small do-able plans that fit into the larger farm
plan.
Retirement plans are a critical strategic issue.
Parents may fear their children will squander everything they worked
for, leaving little for retirement. They may also feel unwanted, so
serving as consultants is valuable.
Prior to retirement, parents should figure out their personal worth and
what is needed to retire as well as new expenses like buying a house in
town, medical costs and a vehicle. Calculate the value of property as
well as sources of income and how much is paid in tax.
Wittman said the future of farming is planning, knowing the numbers,
communicating and seeking outside help.
Farm families should realize it is more costly to break up a business
after a major family battle than pay for professional advice for
planning, record keeping or other services.
