Category: Dynamics

Manage Your Thoughts

To successfully compete in this 21st-century global marketplace your skillset must be fresh, valuable, relevant and compelling.

Beyond every great coach and leader, a brilliant mentor can be discovered. As we unleash our vast potential and explore the outer depths of who we are on our self-discovery journey, mastering the art of relationship building is essential. Relationships are partnerships. They must be authentic and sustainable. The goal of partnerships is to create value and win-win situations. Instead of entering relationships and situations with the mindset of receiving. Shift your focus on what you can deliver and give. Make it easy for people to know you, help you, believe you and value you.

We all need a portfolio of conversation partners. Your network is your net worth. The people you surround yourself with most have a significant influence on your behaviors, attitudes, beliefs, and performance. How these relationships impact the thoughts you think, the actions you take, the words you express and how you envision yourself in this world set the course for your life today and your future tomorrow.

At eighty-one years of age, I no longer believe in waiting for the right moment. I believe in living immediately while using the resources available to find a way. Let each day be a step forward in cultivating your dreams. Courage is the only virtue you cannot fake. The more burning the fear, the greater the grit must be. You can win a lot in life just by being the last one to give up. Sometimes the difference between winning and losing is the ability to summon up extra reserves of energy and strength you did not know you possessed.

Repetition and obstacles are vital to our personal growth journey’s towards mastering ourselves. I have come to realize, one of the most overlooked personal growth objectives is how we incorporate learning and knowledge acquisition into our everyday lives. Learning transpires when you acknowledge what you do not know. To successfully compete in this 21st-century global marketplace your skillset must be fresh, valuable, relevant and compelling. Remember you are always a work in progress. It is about disrupting your own operations and habits while auditing your life to find ways to improve and get 1% better every day. You must be your own disrupter and coach.

As life changes, so must your mind. If you do not manage your thoughts and allow repeated falsehoods to take hold, they become truths. Intellectual capital and living in a state of peace emotionally, physically, mentally and spiritually will always trump financial assets and gain. Wealth, luxury and fame cannot protect a person from despair, loneliness, depression, anxiety, and pain. You cannot heal what you do not acknowledge. What we suppress, we empower!

9 Steps To Getting More Family Harmony

9 Steps To Getting More Family Harmony on the Farm
By Elaine Froese

The coaching theme lately has been older brothers and young brothers (a good bit younger) trying to figure out how to farm together. It is a bit of trick since the older brother typically has a bit more equity because he has been on the farm for a decade or more.

The dilemma of how to give each sibling what they need as a successor sometimes breaks a mother’s heart. She loves all of her children, as does Dad, and she is trying to figure out the way ahead so that the family will be in harmony, and the farm will have a strong team.

What can be done to increase family harmony?

It could be adult children who show up as loving adults, responsible, respectful and ready to create solutions. It is the farming successors who show that family relationships are the core value to be protected, and the farm is a business, not a monster to be fed.

9 Suggestions for All Members to Create Family Harmony on the Farm

1. COME TO THE TABLE

Be willing to discuss ideas and options. What is your big picture vision of farming with your parents and your siblings?

The accountant can give you some creative share structure options, partnership and operating agreements once you are clear about what each sibling needs.  Share your “why” or intent for the things you are asking for.

2. INVOLVE THE DAUGHTER-IN-LAWS

Readers have been asking for an article on daughter-in-laws who farm. I am her. I am a farm partner who supports the farm team. Some daughters-in-law are more active agronomists, livestock keepers, and bookkeepers. Everyone’s role can look different, but all are important.  In my books, the farmer’s spouse can be a daughter-in-law or a son-in-law. The daughter-in-law needs to understand what kind of debt is going to be serviced and be clear that she is willing to help bring in cash or income for family living. If she is a homemaker, that is fine, but the farm will have to cash flow more revenue for debt-servicing. Is this viable?

3. KNOW YOUR FAMILY LIVING COSTS

You need to eat and be clothed. Parents cannot be expected to give you a free ride with free house rent or utilities forever. Once you cover your basic living costs, what do you have left for servicing debt or buying assets? You need disposable cash to grow.

4. REALIZE THAT YOU WILL ALWAYS BE THE OLDEST, MIDDLE OR YOUNGEST CHILD

You cannot change your birth order or become older to “catch up” to your older farming sibling. You can grow up, be mature, and make responsible choices with your time, resources, and energy.  I know a young rancher who worked hard with neighbors to make hay arrangements for his growing cattle herd, and he also bartered his labor to get ahead. He was not using his youth as an excuse to just coast.

5. VISIT YOUR LENDER AND FIND OUT WHAT YOU ARE GOOD FOR REGARDING LOANS

Do you know your net worth? How much money could you come up with quickly to leverage some debt for an awesome opportunity to gain assets to farm? You might not be able to afford land, but can you access some rented land and pay for inputs?  Your mom would like you to be independent with your living (laundry, meals, etc. ) and ready to be independent financially.

6. BE PATIENT

It took your parents 40 years to get where they are today. It is 2016, and farming has big dollars attached to the adventure. Be open to learning more about financial transparency. Negotiate what you are willing to commit to and for how long. If your parents are going to roll over or gift assets, they want to know that their wealth will be protected. They also want your marriage to be strong and enduring.  Set some reasonable timelines and dates on paper so that everyone can digest what a workable timeline is for everyone to get closer to their farming goals.

7. REMEMBER TO BOOK TIME FOR FUN

Strong families celebrate. I wish you could see the tears in Mom’s eyes (and Dad’s) at the end of a family meeting when she tells her adult farming children that she is proud of them and loves them dearly. Appreciation and encouraging the heart of your farm business is done with words of affirmation, gifts, and time spent together with gratitude. Don’t kid yourself that all the stuff you collect in your house is important; life is not about things. Write your folks some nice words in a card this year.

8. DECIDE EVERY DAY HOW YOU ARE GOING TO INTENTIONALLY ADD TO YOUR FARM FAMILY’S EMOTIONAL BANK ACCOUNT

When siblings farm together, especially at different stages of the family life cycle, they need to recognize that they will always be in different phases of that cycle. Parents are not responsible for making all of their children economically equal, yet their heartstrings are pulled to want to help each child achieve success. Farm owners may want to help the younger siblings, just as they have helped the older farm and non-farm siblings in their own way. This is not an easy dance. The founders need to take care of their own income streams for the next 30 years and protect their wealth as they make the transition of ownership gradually. It also helps if there is a “personal wealth bubble,” as Merle Good says, to help draw non-farm cash for living needs as we age.

9. YOUR MOM WILL ALWAYS BE YOUR MOM

Someday mom and dad may also be your business partner. This is where role confusion really mucks people up. They cannot switch “hats” as they relate to each other in the different roles they play. Practice saying, “As your child, I feel valued and respected as a member of this family, and as your future business partner I am looking forward to creating solutions to make a great future for my own family .”

 

Damaged relationships: the price of a failed succession plan

I have read many articles about how lack of succession planning puts the financial future of farms at risk.

They are attention grabbers and while I agree that the lack of or an ineffectively implemented succession plan can have financial implications, mostly farms survive.

These same articles rarely talk about the hidden price of a failed succession, which is the harm to relationships. Family relationships are on the frontline of the succession process. We have all heard the stories about broken families following botched

If asked, the parents in those families would have said their key goals were “to keep the farm in the family and for the kids not to fight.” And yet fight they did. We all hate it when our kids fight, at whatever age.

In succession planning, there are hard and soft issues. Hard issues are those that can be measured in numbers such as net worth and profitability that can be dealt with in a technical manner.

Soft issues are the human side of the equation where we must understand the dynamics of the people involved. A poorly planned and executed plan may not only suffer negative financial and taxation consequences but can ruin family relationships.

Soft issues?

Soft issues can include unresolved conflict within the family, lack of trust among family members, unrealistic expectations and how to be fair to everyone when only one child wants be a farmer. Other issues are fear of losing control and fear of putting the family wealth and a lifetime’s work at risk.

Farm owners face many difficult questions: how do I deal with unreasonable expectations or feelings of entitlement that children may have? How do I treat those that don’t want to farm? Can I still play a role in the farm business?

Soft issues deserve the same degree of attention as the other issues for an effective plan—and they are often the most challenging.

Communication is key

One of the first steps I take when assisting clients with succession planning is to interview all family members, those actively farming and those who are not.

I want to identify divergent interests but also those areas of common interest and expectations that can be built on to move the plan forward. I also want to identify potential obstacles, often soft issues that are difficult to quantify but can erode trust. There is no one-size-fits-all approach.

Often when we get down to the detailed planning, it’s mom and dad and the successor at the table but every family member’s view must be represented. Parents instinctively see their children as equals; they love them equally after all.

However, when it comes to the farm, and keeping it in the family, equal distribution of wealth is often impossible. That leads to the “fair versus equal” discussion and communication is the only way reach consensus and harmony.

It’s important to discuss uncomfortable issues and you must make sure that whatever comes out of that process is effectively communicated to all in the family.

You can plan all you like, but unless you communicate effectively around the issue of some children getting more than others, your succession plan could fail on one of its key objectives — family harmony. You may keep the farm in the family, but it will be a divided family.

Why start early?

Although reasons vary as to why people don’t plan for succession or delay it, it typically comes down to what David Maister, in his book Strategy and the Fat Smoker, describes: We put things off because “the reward (and pleasure) is in the future but the disruption, discomfort and discipline needed to get there are immediate.”

For many, the soft issues are especially uncomfortable and parents worry about upsetting the family dynamic.

Time is your friend – use it

In most situations, our clients have identified the successor or successors early on and planning could have begun far sooner, giving the family more options and time to plan and implement.

An early start gives family members the understanding of what to expect when the parents retire. It is important to think of succession planning not as an event but as a process that takes years. The sooner you start the more time you will have to work through the layers, evaluate multiple possibilities and have those important conversations.

Time is an enormous ally in managing the succession process while ensuring family relationships stay intact. Remember, families better their chances of success one conversation at a time.

Jonathan Small is a partner in MNP’s Farm Management Consulting practice in Red Deer, Alta. He can be reached at 1.403.356.1281 or jonathan.small@mnp.ca

Key Performance Indicators for Cow-Calf Operations.

Ranch KPI

The national beef herd is currently expanding from historically low levels. This expansion and the possibility of lower prices provide an excellent opportunity for you to review financial performance measurements that are critical to your operation. These measurements are known as Key Performance Indicators (KPIs) and are based on production and financial data. You can use these KPIs to evaluate different factors that are crucial to the success of your cow-calf operation.  They can help any rancher evaluate whether the operation is fulfilling his or her goals.  In a sense, they are a report card that can be used to identify weaknesses in a given operation.  Below are twelve KPIs that every rancher should consider as they bring their ranch to full capacity.

It is important that you calculate KPIs correctly and base them on good data.  Be honest with yourself.  In some instances, ranchers find that their financial recordkeeping isn’t as good as it should be.  The most accurate KPIs are calculated from financial accrual-adjusted records.  Remember that no single KPI assures success.  As with a ranch’s resources, the ranch manager must balance the use of these indicators.  To focus on one KPI, at the expense of another, will not improve the overall performance of the ranch.  As an example, increasing the pounds weaned per exposed female does no good if the nutritional base expense indicator is too high.  KPIs have to be in balance for overall performance to be excellent.  Finally, most ranches are involved in multiple enterprises.  The KPI’s discussed below are strictly for the cow-calf segment of a ranch.

Target levels for the various KPIs have been identified through analysis of herd data from several sources including hundreds of herds in the Beef Cow-calf SPA and the author’s research and experience working with individual ranch owners and managers.

  1. Pounds Weaned per Exposed Female – Greater than 460 pounds per Exposed Female

The primary objective for owning breeding beef females is to wean calves.  While every rancher has this goal, how they accomplish it over time varies.  However, the number of calves weaned and how heavy those calves are serve as an indicator of ranch productivity.  From a production standpoint, the pounds of weaned calf per exposed female remains the most important production KPI.  To calculate this KPI, divide the total pounds of weaned calves by the total number of exposed breeding females that were intended to be bred.  This KPI is a function of weaning percentage and weaning weights.  A high weaning percentage begins with a high pregnancy rate followed by a high calving percentage.  While weaning weights are certainly a function of genetics and management, weather and days of age are the most important determinants.  To solve low pounds weaned per exposed female, a rancher should look first at reproduction rates, not at increasing weaning weights.

  1. Revenue per Breeding Female – Greater than $950 per Breeding Female

For a ranch to record net income, it must sell products and generate revenue.  In its simplest form, this KPI is a product of pounds weaned being sold for a competitive price.  However, revenue per breeding female also includes other items.  First, this KPI would include the gains or losses associated with the sales of culled breeding stock.  Second, it should include the annual value change (accrual adjustment) of the weaned calves that are kept in the herd as replacement heifers or replacement bulls.  Ideally, this value would be the accumulated expenses of the calves; however, many ranchers may choose to use market value.  The target figure of $950 per breeding female is based on accumulated expenses, not market value.  If you use the market value approach, the KPI should be higher than $950.

  1. Nutrition Base Expense as a Percent of Total Expenses – Between 30.0 and 45.0 Percent

Because reproduction is the the most important factor in ranch productivity, proper herd nutrition is imperative.  Yet, no two ranches have exactly the same resources to grow, purchase, and maintain the nutritional base required by the breeding herd.  Thus, we need to identify three types of nutritional expense:  1) expenditures for purchasing forage, protein supplement, salt, and minerals; 2) expenses for producing raised feed, such as hay production; 3) costs to maintain and improve grazing for the herd.  Those familiar with the Beef Cow-calf SPA analysis will recognize these as the Raised/Purchased Feed Expense and the Grazing Expense.  To calculate this KPI, start with the total expense of the ranch including owner labor and depreciation.  Then, identify the nutritional costs.  Most successful ranchers keep nutritional expenses at 30 to 45 percent of total expenses.

  1. Labor and Management Expense as a Percent of Total Revenue – Less than 15 Percent

Labor and management expense can be the most variable cost across beef herds.  To calculate this KPI, determine what the total labor and management expense is.  If the ranch uses only hired labor and management, this figure is relatively easy to determine.  If an owner operates the ranch, he must establish a figure for his labor for this KPI to be comparable.  In either case, items such as payroll taxes and employee benefits need to be included.  Labor and management costs are higher than most people realize due to the benefits that hired managers receive.  To interpret this KPI, the ranch owner should target spending less than $0.15 for labor and management per one dollar of revenue generated.

  1. Operating Expense as a Percentage of Total Revenue – Less than 75 Percent

Controlling expenses can be one of the most important exercises for ranch owners and managers.  Managers should target operating expenses at less than 75 percent of total revenue.  Operating expenses include all expenses except interest and depreciation.  If operating expenses are less than 75 percent the ranch’s total revenue, the ranch can use the remaining 25 percent to 1) pay interest, 2) hold in escrow to cover depreciation expense, or 3) retain as net income.  Clearly, a ranch will suffer a net loss if operating expenses plus interest expense and depreciation is greater than total revenue.

  1. Net Income Ratio – Greater than 5 Percent

This ratio corresponds with the fifth KPI.  Net Income is calculated as total revenue minus total expenses.  This KPI represents that portion of total revenue that is retained as net income.  Put another way, a ranch can do four things with total revenue, 1) pay operating expenses, 2) pay interest expenses, 3) place in escrow to account for depreciation expenses, or 4) retain as net income.  This KPI records each of the four as a percent of total revenue.  This target is to retain greater than 5 percent of the total ranch revenue as net income, while the remaining 95 percent can be used to pay for operating, interest, or depreciation costs.

  1. Cost per Cwt. of Weaned Calf – Less than $170.00 per Cwt.

For a ranch manager, the best number to know is what it takes to produce a pound of weaned calf, or in this case, 100 pounds of weaned calves.  This KPI incorporates the productivity of the ranch and the total expenses it took to create that productivity.  Every ranch has a different set of resources that it uses to create calves.  This KPI illustrates how efficiently that manager is using those resources.  When calculated correctly, you can compare this figure to other ranchers across the country regardless of the resources that the manager is using.

Industry-wide, this bottom line KPI is where ranchers compete with one another.  Further, it is known that the cattle industry is cyclical and calf prices move between high (resulting in financial profits) and low (generating financial losses).  This cyclical movement of prices relative to each ranch’s cost of production is what encourages specific ranchers, and the cow-calf industry in general, to expand or contract.  Given current fundamentals, a cost of less than $170 per cwt. is a target ranchers should shoot for.

  1. Total Investment (Market Basis) per Breeding Female – Between $7,500 and $12,500

On most ranches, owned land is the major asset on the balance sheet.  Currently, external factors have driven land prices higher.  In today’s real estate market, ranchers are finding it hard for breeding cows to pay for any land purchase.  Furthermore, potential ranch heirs look at the large investment, labor required, and low rate of return, and have to wonder whether it would be better to invest elsewhere. The ranch manager’s job is to generate the greatest return on the lowest investment possible.  This KPI target range, $7,500 to $12,500, takes into account that some land has already been purchased (or inherited) or that some portion of land the ranch uses is leased.  To calculate this KPI, divide the total asset investment from the balance sheet by the beginning fiscal year inventory of breeding females.

  1. Debt per Breeding Female – Less than $500 per Breeding Female

Given the low rate of return on assets, most ranches cannot pay for much debt.  To illustrate, a target Rate of Return on Assets KPI (Target KPI #13) is greater than 1.5 percent.  With interest rates greater than 4.0 percent, it is impractical to purchase assets that will only return 1.5 percent when that interest is costing the ranch 4.0 percent.  This example does not take into account cases where the asset improves the ranch efficiency enough to overcome the interest cost.  This KPI can vary with some herds able to handle more debt than others.  To calculate this KPI, divide the total debt of the ranch from the balance sheet by the beginning fiscal year inventory of breeding females.  In general, successful ranch managers keep the debt per breeding female under $500 each.

  1. Equity to Asset Ratio (Market Basis) – Greater than 50 Percent

The equity to asset ratio is the percentage of a ranch the owner owns.  To calculate this KPI, divide the net equity by the total assets.  Both figures come from a ranch’s balance sheet.  The opposite image of this KPI is the debt to asset ratio that shows the percentage of the ranch owned by others, such as a lender.  Few lenders will want to finance a ranch if they already own more than 50 percent of it.  This being the case, you should strive to own more than half of the assets.  The type of ranch assets you own will influence whether you can get financing.  For example, if your share is made up of land you own, a lender may find it easier to lend money against an equity to asset ratio of less than half.

  1. Asset Turnover Ratio (Cost Basis) – Greater than 15 Percent

Because ranching is such a highly capitalized business, it is vital that the manager generate the greatest possible net income from those assets.  The asset turnover ratio illustrates how much those assets are generating (turning).  To achieve a KPI target of 15 percent, every dollar of asset making up a particular ranch must generate $0.15.  This figure may seem quite low, but it demonstrates the nature of the ranching business.  To calculate this KPI, divide the net income by the value of assets from the balance sheet.

  1. Rate of Return on Assets (Market Basis) – Greater than 1.5 Percent

Managers depend on the rate of return on assets to evaluate their performance.  The manager’s charge is to use the ranch’s assets to generate positive net income.  In this way, ranch managers are like fund managers on Wall Street.  The difference, however, is the expected ROA.  While the long term return from Wall Street may be greater than 6.0 percent, the long term return from breeding beef cows is closer to 0.5 percent.  When calculated correctly, the ROA can be compared to any other asset management business including your savings account at the local bank.  To calculate this KPI, start with the net income and add to it the interest expenses for the year.  Then, divide this figure by the average value of the assets from the balance sheet.  In this case, we use the market value basis as opposed to the cost basis of the assets.  Successful ranches have an ROA greater than 1.5% over time.

The twelve KPI’s presented here are not the only measures that a ranch should consider.  However, these KPI’s provide an excellent starting point for evaluating the financial targets a ranching operation should strive for.  Remember, each ranch is unique and possibly involved in multiple enterprises that contribute to the financial well-being of the operation. These variations may alter how certain KPIs are viewed.

 

Cow Herd Dynamics

Age & Weight

Most producers seem to refer to cows as “the herd.”

In reality, that herd is split into several age groups that often are overlooked.

Managers usually look at averages to guide managerial applications.

For instance, the cow herd averages 5.6 years of age for North Dakota Beef Cattle Improvement Association producers involved in the North Dakota State University Extension CHAPS program.

Does this mean all the cows should be managed as 5-year-old cows? The answer obviously is no.

However, what is the target?

I could not help pulling out some data I put together a few years ago.

At that time, the average cows enrolled in the CHAPS program averaged 5.4 years of age. Interestingly, average cow age has not changed much during the last few decades.

OF COURSE, the replacement rate is projected to go up because the low number of cows in the inventory begs for more cows.

Currently, the replacement rate benchmark is 15.3 percent, but the example I had worked out was for a 20 percent replacement rate.

You have to keep in mind that not all replacement heifers breed.

So what does this all mean in terms of the distribution of the cow herd?

Assuming a typical herd of 100 cows, one would anticipate the inventory to be made up of 17 first-calf heifers, 15 second-calf heifers, 13 that are 4 years old, 11 that are 5, 10 that are 6, nine that are 7, eight that are 8, six that are 9, five that are 10, three that are 11, two that are 12 and one that is 13 or older. The distribution of age is slanted dramatically to the younger cows.

OF THE total cows, 45 would not be considered mature cows. Only six of the cows would be more than 10 years old.

Managing cows means keeping in mind the various groups of cows that are in the herd and then meeting their nutritional needs, not the nutritional needs for the average age of the cows.

What this means is the cows need to be sorted.

TO MEET each group’s needs, a separate pen for the 17 first-calf heifers should be set, then add the 10-year-old and older cows.

If the pastures were short or winter feed supplies challenging, the second-calf heifers and any thin cows (condition score 4 and under) should be added.

Essentially, the special needs group easily could be 43 cows based on age, plus a few thin cows from the mature group of cows.

Half the herd needs to be on a stepped-up plan of nutrition designed to put some weight on the cows. The other half could follow a typical maintenance, hold-your-own type of plan.

Another way to look at that example is to look at what different ages of cows weigh in the fall

In this example, those first-calf heifers (2 1/2-year-olds) are always the lightest in the fall, coming in at 1,082 pounds. The weight is taken in the fall when the cows are approximately half a year older than when they calved in the spring. The most logical time to weigh the cows is at weaning, so that is the weight that is discussed.

Now, for the weights, with the condition score in parenthesis:

-The 2-year-old weighed 1,082 pounds (4.9),

-3-year-olds 1,184 (5),

-4-year-olds 1,255 (5),

-5-year-olds 1,279 (5.1),

-6-year-olds 1,301 (5.2) and

-the 7-year-olds 1,304 (5.2).

One should note cows keep growing until they reach 7 years of age in this data set. Body condition is more constant and levels a year earlier at 6 years of age.

The important point to remember is cows are not fully grown as heifers and have seven years of growth before they start to decrease in weight.

-The 8-year-olds weighed 1,299 pounds (5.2),

-9-year-olds 1,286 (5.1),

-10-year-olds 1,265 (5),

-11-year-olds 1,267 (4.9),

-12-year-olds 1,236 (4.7),

-13-year-olds 1,232 (4.5) and

-14-year-olds 1,180 (4.3).

Cows slowly work themselves up to a peak weight when they are 7 years old and then start to lose weight until they leave the herd. The 14-year-old cows weigh the same as the 3-year-old cows in the fall of the year.

Body condition is held more constant and 6-, 7- and 8-year-old cows all have similar body condition scores. However at 11-years-old, cows drop back to body condition scores more typical of 2-year-old cows.

The moral of the story is young and old cows need to be treated similarly and fed separately from the main body of cows. That is, if you want excellent performance from all ages of cows.

Understanding the dynamics of the herd is critical to proper management.

May you find all your ear tags.