WESTERN PRODUCER — Affectionately, on the farm, it gets thought of as “the boardroom.” It’s the kitchen table, but the conversation around it isn’t always so affectionate, or so gentle.
The kitchen table can also be host to plenty of uncomfortable questions and conversations, especially if the person asking the questions isn’t getting to see the numbers they think they’ve got a right to see.
“The details of a farm’s finances, business plans or even tax rates may seem like suitable conversation topics among family or farm employees,” says Stu Person, national leader for crop services with MNP.
“(However), that would not likely be acceptable in any other business environment.”
So, where do you draw the line?
“Just because a person is family doesn’t mean they have a right to know everything,” says Person, talking specifically of financial details.
“My advice to clients is that a person must be part of the farm ownership and management team to be entitled access to this level of information.”
That advice makes sense for most Canadian farmers, but in many cases, the follow through isn’t as easy.
Karla Rahn, farm business adviser with Ottawa-based Ag Risk Managers, believes that how a farm owner or farm management team decides who is entitled to what level of access to the details of a farm’s financial info is not a one-off decision. It requires a look at a farm’s values and establishing who has a vote and who has a voice.
The first step to determining where a person fits and how much information should be shared with them is to establish their role on the farm, especially if it is a family business.
Both Person and Rahn recommend that family farms use the three-circle model of the family business system to help everyone understand where they belong within the business.
The three-circle framework clarifies seven groups within the family business (including the circles and their overlaps), each with its own legitimate perspectives, goals and dynamics.
Recognizing where each individual presently fits can also help identify where they may want to move to in the future. For now, determining a person’s role can create boundaries and outline how much, or what level of information, they are entitled to receive.
For example, Person says family owners should have access to more information than family employees. Of course, the level of information shared will be different from farm to farm, but there isn’t much of a downside to formalizing and documenting roles, responsibilities and even access to varying levels of management information.
“Breakdowns happen when people don’t know expectations and what their roles and responsibilities are,” says Rahn.
That’s why a part of setting boundaries includes defining and documenting each person’s role.
This not only helps a farm owner when it comes to managing who should have access to financial and business information, but also supports a collaborative and healthy working environment because people understand the expectations.
Depending on the size and structure of the farm, defining the levels of information access can be achieved through job descriptions, shareholder agreements, corporate bylaws or partnership agreements.
Rahn notes that people can get their backs up when formality and policies start to be imposed on the farm, in part because they may believe it implies a lack of trust.
But that’s not the case, Rahn says. Establishing roles within the farm business is a positive step. It means the farm’s management is setting expectations and it’s building a foundation for an individual’s growth and development, and for healthy communication and accountability.
Also, Rahn says, farmers need to ask themselves what the risk is if certain people aren’t given a voice? The dynamics of personal relationships can make this challenging, but if they should have a voice, that may mean they should also have access to some numbers.
Building a culture of open communications and trust is essential in every business, especially on farms with their close family and employee relationships.
Rahn says that fostering good communications is most helpful when issues occur and will enable concerns to be addressed in a healthy way.
“Transparency and openness build trust and confidence,” she says.
“Open communication will also encourage accountability and help individuals excel within their defined roles, but this is all easier said than done.”
Open and clear communications also need to be extended to farm advisers, especially those who support the farm’s cash flow or financial management. Person reminds farmers of the importance of transparency and honesty when working with advisers, especially banks, lenders and accountants who can only provide advice based on the information they are provided.
“The more information a farm owner can provide, the greater understanding we have of their business so we can support our clients” says Michael Menzi, senior director with Farm Credit Canada.
“Accurate financial statements are important, but so are relationships and honest conversations so we can help farmers through even the most challenging times.”
A farm’s governance may also dictate who has access to information. Person says farm owners should be sure to understand their obligations toward shareholders, management or business partners.
“You’re not hiding anything by giving the right level of information to the right user,” he says.
While a farm’s governance may vary based on size or legal structure, establishing who has access to varying levels of information can be included in written agreements.
Rahn suggests farmers get comfortable with formality. She believes that a farm’s business structure or governance model contributes to who has a voice and who has a vote, and this influences who has access to what information.
“Formality, or written agreements and defined roles, should be part of running a farm business, and while it may appear difficult within farm families, it’s an effective approach to building healthy communication skills, respecting boundaries and taking accountability,” says Rahn.
Nothing strengthens a farm’s financial organization as timely, detailed financial records. No matter who producers share their information with, having a clear understanding of how the farm is performing is essential.
Person reminds farmers to make financial planning and recording a priority, saying “timely and high-quality information is valuable.”
Accrual financial statements top Person’s list of recommended financial documents. He believes these are especially important for measuring a farm’s performance and risk assessment.
Menzi says accurate financial reports also tell a story, enabling farm owners and their advisers to get a full picture of how a farm operation is performing today and help with future projections.
“Use your financial information. Listen to what it is telling you and make changes as needed,” advises Person, who is encouraged by the shift he is seeing in which more farms are taking a higher degree of interest in their financial results and in planning for the future.
He also believes this renewed interest is forcing accountants and farm business advisers to raise their game in how information is presented so it is more meaningful and easier to understand.
“There’s a level of vulnerability that comes with sharing information too, especially a farm’s financial or performance numbers,” says Rahn, reminding farm owners that, however uncomfortable it may be, transparency and openness lead to trust and confidence.
This is especially important when working with stakeholders, such as bankers, lawyers, accountants, estate planners and family advisers.
“Transparency brings vulnerability, openness brings change (and letting go), and together this builds trust and confidence within a relationship and for the business,” she says.
Overall, it translates into improved business results, but Rahn reminds farmers that transparency doesn’t mean sharing everything with everyone.
It may help, too, to turn to your advisers to help navigate challenging situations.
“You can always include a trusted adviser to lead discussions, if necessary,” says Rahn.
Added Person: “There’s an appropriate level of information for people within each farm business arrangement.”
He believes that making the distinction between each person’s role needs to be taken more seriously on farms.
“Whether you are family or not, the dissemination, or sharing of financial information, needs to be more formalized.”
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