Does your business stack up? How to monitor and measure to benchmark success
Your farm has done it all so far. With a strategic plan that encompasses a mission and vision, operational plan and an understanding of your marketplace along with associated risks and opportunities, it’s time to monitor and track your progress.
With the key elements in place, a vital and ongoing component to any strong business is continually monitoring your performance relative to yourself and others in related agricultural sectors through benchmarking.
Let’s review a few key areas to evaluate your Key Performance Indicators (KPIs) and effective tools that can help measure your success.
Defined as a short-term, trackable performance review, KPIs provide a snapshot of how a process can play out at your farm. Within KPIs, there are leading and lagging indicators. These are crucial to understanding since farming is a business of tight margins regardless of sector.
We focus on leading indicators because, as the name implies, they lead us to issues, letting us know action is required. A lagging indicator helps in fiscal year-end scenarios and offers clues to our long-term plans. Let’s look at some farm examples of lagging and leading indicators.
Lagging indicator: Jim and Suneeta begin year one with a plan, a healthy dose of enthusiasm and the typical can-do attitude. They suffer small but repeated setbacks throughout their inaugural growing season. However, their determination to get through year one means they aren’t concerned with a work-life balance. By year-end, their data shows a startling discrepancy. They worked 45% more hours than initially projected which caused stress, fatigue and led to more mistakes.
This is a lagging indicator because they didn’t have a system to indicate their current method was failing them while they were racking up countless hours. Only at the end of the year did they realize they were exhausted, overworked and out of line with initial projections.
Leading indicator: Li and Katie map out farm plans for spring seeding and how the season will play out, barring severe weather events. Their plan to seed 300 acres per day will guarantee they finish planting their crops before a long-term stretch of rain is predicted in June. After day 10, they’re not finished seeding and have not seeded more than 200 acres in a day.
Despite this issue, the immediacy of the plan failing is a leading indicator to understand something must change. Rather than learn at the end of the year that equipment and labour costs were considerably higher than projected through a lagging indicator, the couple can sit down and adjust both their seeding plan and their season expectations.
Whether you need to examine liquidity, solvency or other important ratios with your farm business, remember no two farms are alike. There will always be factors that mean each calculation or ratio will have nuanced adjustments based on your geography – and business plan, goals and more.
Farm example: Jim and Suneeta have a liquidity ratio of 1.64 thanks to $200,000 of assets – $131,000 is saved cash. At the same time, the remaining $69,000 is earlier P.O.s from two different microbreweries that are giving the couple a trial year.
Their $122,000 in liability is spread between machinery payments ($17,000), loans ($80,000) and a small line of credit ($25,000). They’re in a sweet spot of higher than 1.5, but not too high, which would suggest they’re squandering a financial opportunity.
Use our financial ratios to calculate your liquidity, solvency and profitability numbers and discuss with your farm management group, trusted external advisors or FCC relationship manager. They want your business to succeed as much as you do.
Many posit that this KPI is difficult to track and perhaps not worth the same attention as other areas of the farm business. Nothing could be further from the truth. Farm owners need only dig a little deeper to realize that tracking human performance data is possible and valuable.
There are many human resources KPIs available to you. Everything from absenteeism, turnover rates (both voluntary and involuntary), performance reviews and more can all be measured, according to the Academy to Innovate HR (AIHR). They provide tangible examples of a leading HR KPI (a typical week of employee productivity) and a lagging one (employee sickness rate or labour cost per employee).
As with any line of work, there will be ways to monitor situations, understand and assess risks as they come. Not every issue will evoke the same level of urgency in its response, but a response must be carried out, nonetheless.
The balanced scorecard is the perfect tool to use at this stage of your business, which has been up and running long enough with you as the owner to begin to reflect on outcomes.
There are different scorecard iterations, and you can easily customize one that works for your farm business. The key pieces to consider are management perspectives, strategic partners and employees. If these are in harmony and you or your senior management group are satisfied, there’s reason to be pleased.
Like in a vehicle, a dashboard is an agile way to monitor any given area of your business. It gives you an instant understanding of an issue, not on a quarterly or annual basis.
Many lights can illuminate a dashboard, but not all of them require immediate attention. Low windshield fluid elicits a much different sense of urgency compared to a zero-oil pressure indicator.
You can operate a tractor with a dirty windshield a lot longer than you can without oil pressure. As such, we are constantly in a state of prioritization.
In farm businesses, too, there are probably 20-plus lights that could come on—sick workers, parts shortages, delivery delays and more. But only a handful that would command our immediate attention like trade disputes, drought or critical machinery breaking down.
Often, lights on our dashboard offer a welcome distraction to a task at hand. However, assess whether it’s the best use of time, given the urgency. Farm issues should be dealt with in descending order of the largest items contributing to overall profitability. Naturally, the part of your farm responsible for 15% of its profitability is more important than something that only adds 2 or 3%.
Notice the differences between a balanced scorecard and dashboard. Either may indicate issues at hand and should be dealt with appropriately. They could be prioritized with the traffic light system to avoid too much attention on a minor issue, or vice-versa.
As a farm owner, it’s imperative to integrate monitoring systems and warning flags that quickly inform you about adjustments that need to be made to your plans, objectives or mission and vision.
Sophisticated software can perform up-to-the-minute analysis so you can dive into data in the moment or wait for more information to become available. You could also wait for more data to trigger a deeper analysis as required. Here are few examples:
Shopkeep App – perfect for agri-food businesses to track sales, inventory, employee management and performance. Employees can sign in/out and enter information.
AgExpert software – built for producers, it seamlessly integrates all relevant data — payroll, customers and suppliers, taxes, capital assets and more — in one convenient location.
Remember, just because something is outside of your control (weather, global economy, markets), it can and often does trigger the need for an organizational response. That response is fully within your control, and your team and potential upstream or downstream partners in your value chain may depend on a swift answer and action.
Speed matters, and it’s clear when a company has planned for the unplannable compared to solely reactive ones. Your business is complex and important enough that monitoring is not only beneficial it’s also essential.
Now that you have all the pieces to create and execute a strategic plan, we review, reaffirm and rethink to ensure its long-term success.