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Securing Your Farm’s Future:The 5%Rule
Overview• Dr. Danny Klinefelter
• TEPAP Farm Management Philosophy
• The 5% Rule
• Farm Financials 101
• Areas of Critical Risk
• The Promised Land
TEPAP & Dr. Danny Klinefelter
Dr. Danny Klinefelter• Director of TEPAP
• Executive Secretary of AAPEX
• Named by Top Producer magazine as one of the 25 people in the world who will have the greatest influence on the future of American agriculture, 2009
Farm Management Philosophy
7 Key Principles:
Jack Welch: True competitive
advantage
Wayne Gretzky:Strategic Management
Analyzing:What not to do & opportunities
Learning Orgs:If it’s not broke haven’t
looked hard enough
Continuous ManagementImprovement
TimingThe future belongs to…
The 5% Rule
Baseball analogy• .300 hitter vs .250
Klinefelter Farm credit study• data showing top 25% were only about 5% better than average
(82-87)
David Kohl FINBIN research • 2012 Top 20% NI of $859,000, bottom 20% $14,000• 2015 Top 20% $580,000, bottom 20% ($332,000)
The fun part
Western Canada Base Farm
5% Baby steps =BIG EFFECTS
Cumulative, Multiplicative Compounding effects:Change to Net Income
Why is 5% Important?
271
332
280 271 279
354
404
80101 109 95 102
134 142
191
231
170 176 176
220
262
115133 135 146 154
167182
0
50
100
150
200
250
300
350
400
450
2007 2008 2009 2010 2011 2012 2013
Average of Revenue $ / Acre Average of Inputs $ / AcreAverage of Gross Margin $ / Acre Average of Fixed Costs $ / Acre
Equity Change – 5 years of 5% 4000 Acre Farm
Better is Better, before Bigger is Better
239
285 290 310 267
287
173 190
224 241
195 214
-
50
100
150
200
250
300
350
2010 2011 2012 2013 2014 2015
Gross Margins Top vs Average Producers - Medium Sized Farm
Top Producer Average
Size Doesn’t Matter…….
-
50.00
100.00
150.00
200.00
250.00
300.00
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Gross Margins
0 to 5000 Acres 5000 to 15000 Acres 15000 Acres and above
Farm Financials 101
Gross margin 5%• Margin Manager
• Accrual Financials
• 4 R’s
• On Farm trials
• Marketing
• Education
Farm Financials 101
LPM & 5%• Optimization/Budget• Perfection Vs Logistic’s
• Hours in vs hours on
• HR – shifts, culture,
• Family Draw
• Benchmarking
• Peer groups
• Advisory Boards
Farm Financials 101
LBF & 5%• Tends to be a function of age and equity
• Family Investment, or family purchase
• Control is key
• Separate real estate business
Areas of Critical Risk• Political
• Financial
• People
Areas of Critical Risk
Political Risk• Brand
• NAFTA
• GMO
• Consumer
Financial Risk• Working capital
• Debt service
• Margin Management (how much risk)
• Global Ag RIsk
People Risk• Most important asset
• Delegation/Workaholic badge
• Unique Ability/ABC
• Workhorsehub.ca
SPEED OF RISK
Why is all this important?
Legacy:Leave the dirt and
financial statements in a better state than the
last generation
Feed the world
Ag is a great business with great opportunities
Content here Content here
Why is all this Important?
kristjanhebert.com
@kristjanhebert
Hebert Grain Ventures
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