Farm CEO mindset: Turning vision into a business plan
Modern agriculture is no longer only about production; it can be about managing a multi-million-dollar enterprise. And as the complexity of farming deepens, thinking like a CEO becomes ever-more important. It means approaching the farm as a business, equipped with important tools like a long-term vision, and strategic and risk management plans.
With a CEO mindset emphasizing data-driven decision-making and business strategy, you can reduce reactive choices and missed opportunities. It can help you make proactive decisions on investments, technology adoption, human resources and more. This opens the door to encourage farm growth, transition planning and farm resilience, say financial and business planning experts Matt Creechan and Evan Shout.
Rethinking tradition
The farmers who have done business planning stand out.
Creechan, a partner at KPMG, focuses on strategic planning, risk management and business advisory services for agricultural businesses. He says many farmers want each business decision to be a big win. Instead, he encourages them to set that desire aside in favour of strategies that achieve a more measured pace of growth.
The farmers who have done business planning stand out, Creechan says. They’re the ones always looking ahead, seeking ways to improve or expand their farm business, all while continuing to learn and take an active role in the industry.
Farm Management Canada found a measurable link between farm financial performance and the adoption of farm business management practices. Several practices, including having a written business plan, monitoring cost of production and keeping an updated budget and financial plan, were found to be significant drivers of higher farm profitability.
Keep records, identify goals
Consistently beneficial business decisions are usually backed by data, and effective business planning includes using benchmarking and production records to inform your key performance indicators.
Creechan stresses the importance of staying on top of accurate financial records, budgeting and market forecasting, which an employee or consultant might be hired to track. Just asking, “How did we do?” at the end of the fiscal year isn’t enough, particularly given that many decisions about the upcoming year have already been made by that time. Ultimately, it’s the farm CEO’s responsibility to turn the analysis into decisions.
“I think the key thing on the accounting and financial side is doing a budget and comparing your actual expenses to your budget,” Creechan says. “It doesn’t have to be super robust, but it needs to get done in a timely manner. Doing that avoids the cash crunch. A lot of producers are surprised when they’re short on cash, and that impacts the business plan.”
Benchmarking and cash flow analysis are part of operational metrics and regular assessment of the ever-changing risks and opportunities facing your operation.
“Operators with a CEO mindset, they’re doing that, and probably seasonally,” Creechan says. “They’re thinking about it and often taking the next step to document it and share that information with key stakeholders.”
Writing down your potential opportunities and what you want to achieve is an important first step in business planning. Goals can be broad or specific, and designated as short- or longer-term. Partners and your stakeholder network can help evaluate what’s needed to achieve each goal, and over time, what does or doesn’t need to change to keep the business on track with the goals.
Accounting for change
For Evan Shout, a business plan and proactive management are necessities given the need to maintain margins over prolonged periods. Shout is a chartered professional accountant and chief financial officer of Hebert Grain Ventures, a 40,000-acre grain and oilseed operation in Moosomin, Sask.
“Cash flow is no longer a short-term plan,” Shout says. “In the past, producers have learned to sell when they needed cash and spend when they had it. That no longer applies. Today, a farming season is 24 months long and those that have cash flow success must have a much longer plan to create margin. By spending today and selling in the future, you may produce significant cash flow just on the margin you create.”
He explains that farmers often consider marketing as selling product at the top of the market, for the most profit. But that’s only half the story. Farms today must manage sales based on cash flow requirements, logistical ceilings, profit and timing of purchases. Each is another reason to keep updated financial records and cash flow analysis as part of your commodity marketing plan and overall business plan.
More important than ever
The aging demographics of the Canadian agriculture industry and rising farmland values are also at play. Creechan and Shout say that a regularly reviewed, updated business plan is more important in the face of a wave of farm transition.
Creechan adds that with careful business planning, farms are much more likely to survive and prosper the forthcoming consolidation period.
“Business planning will allow farms to grow and allow family farms to continue for another generation,” Creechan says. “The farms that have adopted the CEO mindset are most likely to be in a position to continue to grow at a healthy pace.”
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