38 FINANCES


can guide other operators. The gross margin for


horticultural operations after expenses, for example, is typically 75% of sales, while for livestock operations it’s closer to 65%. Subtracting labour expenses and similar costs reduces the margin to 45% of sales.


Operating efficiency, after all expenses, should be closer to 35% before interest, taxes and depreciation. “This gives you something


to work towards,” he said, noting that if growers are looking at a gross margin of 55%, they’ve got a problem and should look at ways to boost sales or cut expenses. Sometimes, both are in order.


Similarly, if debts are more


than three times operating efficiency, farmers may be over-leveraged – a situation Martin said isn’t uncommon in Canada. Often, he said, farmers owe eight times what they’re bringing in each year. While the value of land and others assets may cover the debts, it’s still not the best situation for long-term stability. Yet many farmers live with the risks unwittingly, because they don’t take the time to read and understand their financial statements.


Operating a farm is about


more than numbers, however. It’s also about people, and


Martin said it’s important for farmers to recognize the value and importance of not only their present employees but also future generations. On the one hand, current


nfrom page 37


employees should be treated well and as contributing parts of the farm who can be enhanced rather than replaced by mechanization. “Successful farmers treat their people as strategic assets, not as costs,” Martin said.


Successful farm operators


find ways to attract and retain people, he added,


compensating them based on performance. This gives them something to work towards, and gives them a stake in the success of the business. It will also help ensure they


stick around and potentially be part of the transition when the current generation steps away from management and a new generation of owners takes over.


“Successful farm managers deal with succession before they have to. They understand that they are mortal,” Martin said.


Succession isn’t just about ensuring the smooth operation of the farm, however. It’s also about the ownership – which isn’t necessarily the same as the management or employee group – and putting financial arrangements in place that allow ownership to transfer smoothly. Martin didn’t dig into the details but he warned listeners that not having a succession plan creates more anguish, tax bills and lost farms than anything else in the business life of the farm – all at a time when new owners could be putting their own stamp on the business.


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CELEBRATING 100 YEARS! Members of the Eaglet Lake Farmers’ Institute in Griscome, northeast of Prince George, celebrated the organization’s 100th anniversary August 5 with the unveiling of three signs acknowledging the area's agricultural roots and providing a legacy to the community. The Willow River Endowment Fund contributed $2,500 for the signs' creation, which feature historic documents including the institute’s 1915 declaration and a list of its founding members. About 40 ELFI members and guests took part in the celebration thatincluded a community potluck and agricultural displays at Harold Mann Park. ELFI SUBMITTED PHOTO


Preparing for the challenges early, and seeing them as part of the ongoing management of the business is what successful farmers do,


Martin said. The nuts and bolts of management may not be glamorous, but they’re essential in making sure businesses stay current,


profitable, and viable from generation to generation. “They aren’t sexy or magic;


they are just a result of focus and discipline,” he said.


Managing risk, seizing opportunities


Risk often looks like something over which people have little control; everyone knows it’s out there, but preparing for the unexpected is tougher to do. As growers participating in last fall’s avian influenza workshop in Abbotsford pointed out, it’s tough to stay vigilant when a


threat isn’t on your doorstep. But to the surprise of many


growers at David Hillson’s talk at the Pacific Agriculture Show this past January, there is actually an international standard for managing risk – ISO 31000. Hillson, who operates a business management


consultancy in England where he’s known as “the risk doctor,” told BC growers that people deal with risk everyday and it’s almost second-nature to them. What’s more difficult is


knowing which risks count, and how to manage them for success. “Risk management makes


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the difference between success and failure,” he said, noting that the ISO standard aims to help businesses gauge the potential deviation risk entails from expected outcomes, positive as well as negative. Risk management comes


down to the regular practice of thinking about risk in a structured way that aims at positive outcomes. Among the key questions


growers can ask to help shape their responses are: • What am I trying to achieve?


• What could affect me? • Which is the most important?


• What will I do? • Does the strategy work? • What difference has it made? Rather than simply being a


thought-exercise, Hillson encouraged growers to focus on practical answers that could become part of their operating plans.


COUNTRY LIFE IN BC • SEPTEMBER 2017


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