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?

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@kristjanhebert

Hebert Grain Ventures