Shift your paradigm
While technological tools are important to analyze data, farm managers shouldn’t dismiss the importance of other business skills such as communication.
“Successful operations of the future likely will have many employees, landowners and business partners, so producers need to be able to work well with others,” Dhuyvetter says. “Historically, most farmers have worked hard all day while almost minimizing their interaction with others. Few farmers would classify themselves as a ‘people person.’”
Communication is particularly important in building relationships with lenders. Farmers must become much more business-minded.
“Instead of going in to simply ask for funding, present the farming operation as a business opportunity for the bank to make money on by investing in it,” Dhuyvetter says. That means sharing information and showing the expected rate of return.
Duncan provides his bank his basic business financials, such as balance sheets, crop budgets, projections and business plans, and yearly goals. He prints out reports from QuickBooks and Excel for the bank to input into FINPACK.
The same applies to communicating with landowners. “Be willing to discuss results from other types of arrangements like cash and crop-share,” he says. “Treat your landowner as a stockholder. You have a fiscal responsibility to provide them with information.”
Communication is critical when working with multiple business partners, yet that is often lacking among family members, Dhuyvetter says. “It’s easy to assume that because we’re family, we don’t need to talk about things, yet we understand outside partners need information all the time,” he says. “We have to make sure everybody is on the same page and that finances and management strategies are transparent.”
Forming a board of directors has helped fill communication gaps. The Wagers hold weekly “manpower” meetings. They post tasks, along with the person responsible and the date due. “It’s an accountability check to have it up in everybody’s line of sight.”
Dhuyvetter believes that family farms should treat all stakeholders like true business partners, regardless of whether they’re family or live on the farm. For many producers, transparency requires a paradigm shift.
“The more your business partners know what is going on and what they can expect, the easier they will be to work with. Family values still matter, of course, but they matter in all lines of work,” Dhuyvetter says. “Sure, there are things about a family farm that are different than corporate America. But we should not use that as an excuse for not treating the operation like a business.”
For example, Dhuyvetter is often asked about leasing arrangements for land owned by on- and off-farm family members. “A number of folks seem to think that because it is family land, they should get to lease it for less than what they would pay a non-family member,” he says. “While off-farm siblings might be willing to do that, it should never be an expectation.”
Other family dynamics can also create challenges in running the business. While Wagers says he and his brothers trust and take directions from each other, they’re implementing job descriptions and position-based contracts to prevent potential disputes over responsibilities and ownership.
“If you’re all equal owners but don’t separate ownership from the role you play as an employee, it can become problematic pretty quickly,” he says. “Responsibilities aren’t often given out equally. We need a system of who’s in charge.”
“There’s a whole new dynamic,” Jacob says. “Everybody used to work really hard because it had to be done. But there’s more to do than can be done. Unless we get really effective about the way we do it, we’re not going to keep up, especially with the key management areas.”
For tasks the brothers can’t address, a flex labor force including high school students and retirees helps fill the gap.
Wagers also stresses the importance of planning for changes in ownership. The board of directors is researching options for a buy-in for adding new partners, as well as a buyout plan if a member exits the business.
They also have written a succession plan. For instance, a spouse would receive 75% of the deceased’s salary the first year following his death, 50% the second year and so on. They’re also researching other estate-planning strategies.
In addition, the board is defining how to evaluate a new employee such as a niece or nephew. To ensure new hires make sense, the board plans to assess the need for additional employees, necessary skills and how the person’s character fits the business. They hope to use the advisory board for unbiased input, similar to corporate interview panelists. They’re also planning ahead to prevent nepotism, such as requiring an introductory phase where the new hire does not work directly under his or her parent.
Though he has far fewer people involved, Duncan also has learned the importance of building a strong team. Knowing his resources helps him keep the farm operating efficiently.
“You can’t do everything by yourself and still make good management decisions,” he says. “Sometimes you need help, whether from a family member, employee, crop advisor, accountant or lawyer. It takes some of the day-to-day pressure off and allows you to make good decisions.”
While most farmers understand the need to operate with a business mindset, taking it to the next level won’t happen overnight or with a class.
“We’re asking folks to change their thinking, and it’s not easily done. This is a process that might take a long time, but starting to think more like a true business is a positive move,” Dhuyvetter says.