Creating a prosperous farming future

Take home messages

• People are the number one profit driver in any business. Ensure 2% to 3% of gross farm income is invested in professional development each year and make sure some of it is in the interpersonal skill area.
• A ‘measure to manage’ approach is a must in all farm businesses. Develop your key performance indicators then identify and improve the skills and strategies to enable continuous improvement.
• Most farmers live in a cage of their own making. It is knowing what is going on outside that cage and how you adopt and implement the new ideas that usually decides your future.

Introduction

Agriculture is one of the most challenging industries in the world, with the two most influential factors, climate and markets out of most farmers control. Prospering in farming requires five key attributes:

1. Mindset – attitude.
2. Structure – systems.
3. Plans – strategy and tactics.
4. Chemistry – how to gel/relationships.
5. Culture – values that guide decisions and behaviour.

A lack of profit most of the time is not a technical or production issue. More often, it is a people problem. Get the people right and the production and profit will follow. Profit is just as dependent on good communication, problem solving and negotiation as it is on using the right chemical and fertiliser. We must always be fertilising the top paddock; the one on top of your shoulders. A good starting point is to invest 2% to 3% of your gross income on professional development each year. As the leader of your farm business you need to ensure that you are staying abreast of the opportunities that are available to you. Change may not be compulsory but neither is survival.

Main characteristics of the key profit driver

The number one profit driver in your farm business is not price or yield. You are the number one profit driver. To become a better operator it may be useful for you to critically analyse some of the best farmers in the district. Good operators understand and have strong focus on the key performance indicators and what drives them. They have a measure to manage approach, have great discipline and never make excuses. Resource allocation is well managed and they have a good support team around them. Good planning, monitoring and analysis skills are supported by an ability to synthesise information well. Behaviours such as remaining abreast of new technology and conducting one’s own on-farm research are a given on prosperous farms. Most importantly good farmers have an ability to milk all the learning from every mistake and their time management is spot on.

Management structures that matter

When you mention the words ‘farm business structures’, most farmers think of legal structures such as sole traders, partnerships, companies and trusts. Whilst it is very important to ensure you are using the right trading and ownership entity, there are many more structures that need to be put in place to ensure the smooth running of the farm business. Management structures are also very important. Boards or advisory groups, support teams, regular meetings, job descriptions and dispute resolution processes are all part of good management structures.

Selecting the right business structures helps manage the expectation of the partners or investors in the business and reduces the risk exposure of the individuals within the entity. It should also bring about the most effective tax arrangements and keep the administration costs in line with the benefits derived. Selecting the right structures can also be a tremendous aid to succession planning. A failure in any one of these can be traced back to a lack of good processes, systems and discipline. It is like cooking a special cake, as you need a good recipe where ingredients are contributed in the right proportion. It always pays to work on the weakest link, and if you do this with the five core business ingredients then there is every chance you will be profitable and gaining job satisfaction.

When we analyse the very successful franchise businesses, the core of their success is built around, structures, systems and processes. Having good systems and structures in place ensures that the members of the business are playing “the ball not the man”. This should reduce disputation, ensure better and more timely decisions and make the job of farming a more profitable and pleasurable one.

I have long held the belief that you should never go into business with family or friends. With family farming being the predominant operational structure in Australian agriculture, it is critical to have good systems and structures in place, not only to make the best decisions but also to preserve the family relationships.

Every year I see farmers having a strong desire to improve production. They attend field days and seminars, invest in equipment and machinery, read farming magazines and pester their neighbours for knowledge yet they do not invest a cent in the development of their core interpersonal skills. In this fast-changing world communication, problem solving, negotiation, stress management, time management and leadership are the mortar between the bricks when it comes to running a successful business and ensuring that progression is made. Each year most farmers should be undertaking professional development in one or two of these areas. After all, you do not want to become the weak link in the business. Structuring a three-year professional development program for yourself is well worth the effort.

How do you develop the best strategy?

Develop the Key Performance Indicators and the strategies that drive them. Strategy is the art of planning and directing the larger decisions in the business. Good strategy is everything when it comes to running a prosperous business and starts with having good data or facts on which to base your decision. It is like the foundations of a building; the rest of the structure depends on it. In making better decisions further information and research is usually required. Combine all that with your own experience and you are getting to a point of being wise enough to make a good decision. Wisdom can only be created by combining all these factors; it cannot sit on its own. Farmers must always remember that it is not how high you fly but how well you bounce. It is the decision’s that you make in the good times that get you through the bad. If you are going to cope with drought, for instance, it is the good decisions that you make in good seasons that will get you through the drought.

Developing your personal priority list

Your priorities in life and their order of importance should rarely change and are as follows:

• Your physical and mental health – determines how you perform
• Your family – you need them for love, support and responsibility
• Your business/occupation – for self-worth and livelihood
• Your personal priorities – relief valves
• Your friends – for fun
• Your community – takes the focus away from yourself

Many farmers place their business first and wonder why their physical and mental health is not what it should be. Good mental health is enhanced by a good annual holiday and, where possible, a few short breaks in-between. Some farmers doing it tough say they cannot afford a holiday, but I am convinced that the benefits outweigh the costs manyfold. Without your health the rest of your life (and the people around you) can suffer.

What must be your non-negotiables

Every farming family should have a set of ‘non-negotiables’. This is an agreed list of ‘must-dos’ and things that you will not do. This sets a good environment in which the team can do things confidently and well. If after a good apprenticeship you decide to return to the family farm for the long term it is critical that you develop some 20-year goals. For parents, it is critical that by the time they have reached 50 years of age they have well defined retirement, succession and estate plans. Most leave it far too late and the decisions made usually impacts significantly on the next generation. The younger generation need to have share farming, leasing and contracting as considerations for their individual growth strategies. A goal to own 1000 hectares at 40 years of age cannot happen overnight. Equity needs to be accumulated over time to enable this to happen. Timing and good advice in agriculture is not something; it is everything. The difference between good and average farmers is not in the amount of work done, but in the quality, timing and implementation of the decisions. Young farmers need to accept responsibility, take calculated risks and learn everything possible from their mistakes.

To be able to achieve 20-year business goals it is essential that farmers understand the relationship between cash, profit and wealth. Many farmers generate a lot of cash, but the level of profit is not as one would expect, thus limiting wealth creation. To create wealth, we need profit so that cash management is the key. It is investing in appreciating assets rather than depreciating assets that makes this journey more achievable. Every individual piece of machinery and or equipment on a farm must be a cost and profit centre in itself, so that wise decisions can be made when it comes to its replacement.

How you build your personal resilience

Resilience is our ability to withstand or overcome adversity or unpleasant events and successfully adapt to change and adversity. Farmers that experience drought, floods and fire are always challenging their own resilience. It is commonly said that what matters most is not what happens to us, but how we deal with the adversity. Resilience is built around having strong purpose, mental toughness, physical endurance and emotional balance. Staying in control of one’s thoughts is so important. Making sure that you are always dealing with reality and basing decisions on high probability rather than hope remains critically important.

Having a couple of personal and/or business mentors can help. Having someone with whom you can share your inner thoughts is invaluable, particularly in tough times. Asking your mentor ‘how do you think I am going?’, whilst knowing that the reply will be honest and valued, is critical.

Physical and mental fitness are strongly linked. Many farmers whilst doing some physical work remain physically unfit and this eventually impacts on mental well-being.

Emotional intelligence is more important than you think

Emotional intelligence is about using your emotions to inform your thinking and then using your thinking to manage your emotions. Whether we like it or not, we experience an emotion every minute of the day. Right now, you are experiencing an emotion and when asked what it is, most people struggle to describe or identify it. Emotions are feelings you have about a situation and, believe it or not, they strongly influence the way you act and interact. Most of our relationships are built around emotional intelligence. The six basic emotions of joy, surprise, fear, disgust, anger and sadness can be expanded to hundreds of words that describe how we feel about a person or situation. A good starting point is to identify when you behave badly, and then work on improving your reaction to this situation when it happens again. If it involves another person, a good starting point is to make sure you frame your comments with the word ’I’ rather than ‘you’, as this takes the blame out of the conversation. To use the ‘I feel __ because __ and I would like __’ process has a high success rate in meeting the needs of both parties and rarely burns any bridges.

Managing generational differences

When a young farmer is showing excellent signs, it is important that Mum, Dad or the boss harnesses this enthusiasm and ability. I see far too many farmers who become control freaks and remain so until they retire. The issues that need to be addressed in this process can be difficult and complex and a third-party consultant can be a good foil in making the decisions that accommodate for all parties. Whilst there is a huge knowledge, wealth and experience gap when the young farmer starts out, I still believe you need to develop a team approach from day one. There should be no power plays.

Regardless of whether it is your son or daughter that has joined the workforce, they should be treated as a professional employee from the beginning. This means sitting down and writing a job and person description, so that the new employee has a clear understanding of what their role and responsibilities are, as well as what expectations need to be developed and met. This should be supported by a well-documented salary package. If a full salary is not to be paid the difference between what the young employee is worth and what they get paid should be shown as a trade creditor on the balance sheet at the end of each year. Giving sole responsibilities from the commencement of employment is essential, even if it is initially just caring for the dogs or tidying the workshop. Transferring responsibility from the older to the younger generation should be pursued at appropriate times from there on.

If the young family member continues to live in the family home, commercial rates of board should be paid. As an employer you become a very important teacher particularly in the earlier years. Learning the true cost of living is very important and therefore, if a parent is continuing to do the clothes washing, this should be valued. When an appropriate opportunity presents itself for the younger generation to live separately, this should be considered. Living and breathing the same air day after day can spell problems for many.

If, however, you continue to live under the same roof, an important consideration is to avoid giving the son or daughter a wakeup call each morning - that is what alarm clocks are for. If they don’t present for work, drive away and leave them behind. In this instance, guilt should be the greatest teacher, but if you have to drive off to work without your employee repeatedly, then maybe it is time for them to find another job. Every job should provide the necessary motivation to get out of bed. However, we must remember that we have all been guilty of a sleep in.

The old saying is that if you have a problem at work then you will be a problem at home, and therefore it is critical to preserve family relationships. Setting good ground rules and processes at the start are the secret to maintaining a good relationship. If a problem has surfaced, don’t sit on it, but get it out in the open, have a discussion, come up with a resolution and move on. In these situations, some give and take is usually required, and sometimes we need to agree to disagree. The requirement for regular formal business meetings goes without saying.

Conclusion

People are the number one profit driver in any business. Ensure that 2% to 3% of gross farm income is invested in professional development each year and make sure that some of it is in the interpersonal skill area.

Develop your business’s key performance indicators, then identify and improve the skills and strategies of your employees to enable continuous improvement.

Most farmers live in a cage of their own making, therefore it is knowing what is going on outside that cage, as well as how you adopt and implement new ideas, that usually decides your future.

Contact details

Ken Solly
kensolly@rbm.com.au