By Terry Betker
When the planets align and the growing season weather is perfect, and there are production shortfalls in other parts of the world and the markets respond positively, and when you’re able to price into market highs, life on the farm can be very rewarding. A possible scenario? Perhaps, but likely it’ll only happen once in a blue moon, it at all.
There are other alignments to keep in mind when farming, however — alignments that are much more within a farmer’s control and far more common in a career. These alignments are: business direction, financial performance and management structure. This is nothing new, as these functions have impacted on farms for decades, but hat is new is the importance of more proactively understanding them and monitoring their alignment as a farm business moves through its life cycle.
This alignment consideration is really about strategy or strategic direction. Farms and farm families should have written statements, typically characterized as vision statements, that provide longer term direction of the farm and family. A vision is the foundation of your future — what you want your farm business to become.
Technically, a vision statement should be a little cloudy and grand. Practically, it should describe where you see your farm business 5 years from now. It is not set in stone. Your vision will evolve over time and as situations change. It represents the direction of the business or where the business is headed. It becomes the road map — the ‘you can’t get there if you don’t know where you’re headed’ reality.
Your farm has an existing financial direction. The reality is that it is headed somewhere financially. For most farmers, this is a reactive function meaning that your financial position in the future – say 5 years from now – will be an outcome of what will happen over that time frame. The preferred approach is to define what you want, or need, your financial position to be. And then determine what can and needs to be done to achieve it. Think of it as creating your financial vision. It should include financial targets and investment guidelines. There is a business adage that says that you can’t manage what you can’t measure. How do you know if you are tracking to where you want to be financially if you haven’t defined the goal?
Logically, there should be a significant degree of alignment between a business vision and a financial vision. I find myself in discussions with farm families where there sometimes is a disconnect between their ideas of where they want their farm to be in the future and their ability to get there financially. Having a dream and then after a time, realizing you can’t afford it can be discouraging — like setting out on a trip and part way along the journey, realizing that you don’t have enough gas.
What does the management structure of your farm need to look like 5 years from now so that it is appropriately aligned with your financial and business vision?
The importance of understanding a farm’s management structure, as farms increase in size, become more complex, and transition inter-generationally, has never been greater. The basic management functions on a farm are the same but what’s involved in attending to those functions has changed and is changing. For many farms, this is a new and evolving reality.
Simply stated, what does the management structure of your farm need to look like 5 years from now so that it is appropriately aligned with your financial and business vision? Putting some structure around the management functions on a farm can be a very powerful exercise and doesn’t have to be a complex exercise. Start by drawing an organizational chart that best represents how your business is being managed. Determine who has responsibility for operations, marketing, financial and human resource management? Next, define what the tasks are in each of those management areas. Then, repeat the process that best represents what you think will be required 5 years from now, both in terms of the tasks and the responsibilities.
Three activities are required. Creating your business vision. Putting definition around your farm’s financial future. Developing a management structure that reflects the current reality and future requirements. Once completed, you will be able to monitor their alignment and make adjustments that will be required to keep them aligned.
Terry Betker is a farm management consultant, working with Backswath Management Inc. He can be reached at 204.782.8200 or [email protected]