By: Francisco Duboy, Partner C&D Agricultural Consulting.
What is management? We could simply define it as a group of tools that help improve the administration of a company, with the ultimate goal of improving its profitability.
Often, the management of agricultural companies seems to be far removed from the farmers and, therefore, it often happens that a large number of farmers are drifting along, hoping that the season will treat them as well as possible.
In general, what we see are administrations that operate based on a bank account or, as they say colloquially, with a “baker’s account.”
Incredibly, in large, medium and small companies the problems are similar and, after much observation, a set of first steps has been defined that must be taken to get started in agricultural management.
- Get involved, train the team and define clear goals
One of the main diagnoses of the industry is that farmers generally neglect the accounting of their companies, handing over all the power to accountants, who often do not understand the business. Accountants, on the other hand, only worry about tax accounting (for the SII) and, occasionally, financial accounting (for banks), but never about management accounting.
The problem is that when you try to make a report and explain the results of the field through accounting, it is impossible. This is where parallel spreadsheets are created that only generate more doubts.
Fortunately, there are alternatives dedicated to pushing the entire system, so that the basis of management is accounting, in such a way as to be sure that the correct numbers are being used.
By not getting involved in this area, farmers delegate this to unqualified personnel and sometimes invest in software, which although they work, when used poorly they end up in the trash. Every time the question arises as to whether Excel is sufficient or whether it is necessary to change to a software, the answer must be: who is going to use the software? software?
Therefore, just as time is allocated to reviewing irrigation, pruning, and harvesting, there must be a (limited) time for reviewing the company's accounting. No manager should ignore this area.
Once these stages have been completed, the management goals must be defined, or rather, what the steps will be to reach this goal and what information is required. For example, achieving a clear understanding of which plots are the most profitable, the cost per hectare, how much is spent on agrochemicals, labor costs, etc., in order to be able to take actions such as investing in soil improvements in plots that have productive potential, uprooting orchards that are not able to cover their fixed costs or doing a complete review of the spending on the agrochemical program.
On the other hand, good, healthy and orderly accounting allows us to anticipate periods of low cash flows, in such a way as to prepare possible financing or avoid expenses that cannot be covered later.
From management to defining the playing field
- Define Cost Center plan:
A cost center is the unit that you want to control, it can be a productive unit (Lapins Block 1) or a unit that only has consumption (Tractor MF1). The cost center plan must be reviewed year after year. This same plan includes data such as hectares, irrigation system, years of planting, rootstock, production codes, etc. software, etc.
As a recommendation, it is always suggested not to have cost centers that are too small, since it makes their control very difficult. It is important to understand that the more detailed this plan is, the more HH will be assigned. The importance of controlling only relevant units must be taken into account. For example, creating a cost center for a back-to-back machine would be inefficient, but creating a cost center for a set of smaller machines could be more useful.
Cost Center Plan Example:
It is very common to find that accounting does not manage cost centers, therefore, the expense ends up accumulated in large units, which do not allow analysis.
- Define accounting chart of accounts
Accounting accounts are those that accountants usually use to provide details to financial statements. An accounting account can be electricity, utilities, wages, fuel, etc. The accounting account answers the question, "What is it?", therefore when an expense is presented, the cost center answers the question, "Where was it spent?"
In general, accountants have pre-established plans and sometimes these are not very detailed, but the main problem is that the accountant is usually an outsider, who does not always know how to answer "What is it?" and, therefore, ends up allocating the expense to the wrong accounts.
It is suggested that this work be done with the help of an accountant, reviewing each account and understanding what will be charged to each one. Adding or deleting accounts if necessary.
- Assignment of remuneration
It is very important to have a software that allows for good control of the workforce, detailing cost centers, tasks, workdays, deals, bonuses, etc. Labor in the case of cherries can represent 60% of the total cost, therefore, not having details in this area would be a serious mistake.
- Define those responsible for assignment
It is very common for accountants to allocate invoices as they wish, generating poor management information. There are some options for correctly allocating the data.
- Use of purchase orders in all invoices, detailing the Cost Center and Accounting Account, so that the person assigned to accounting has the correct information.
- In the case of smaller farms, the delivery of the purchase book with the assignment of all invoices by the administrator is a practical and easy way, although sometimes tedious.
- Reportability
With this information correctly entered, you are ready to generate reports. The information is downloaded from the accounting and based on spreadsheets or preferably on Dashboards that they report the information imputed on a month-to-month basis in a friendly manner. It is important that the reports are issued every month and reviewed by the administration, in such a way that assignment errors can be gradually corrected.
Example of a report, showing indicators by species between two seasons:
How long does this process take?
At least one year of organized information is required to start having interesting data, this is because the agricultural business has annual cycles. The important thing is to take the first steps quickly, for this, consulting with companies makes it easier and shortens the period of error.
The benefits, therefore, of good agricultural management are:
- Budget control (which would eventually allow alerts on thefts)
- Making informed decisions with reliable information (do I start, plant, invest in machinery?).
- Avoiding fines from the IRS (bad tax practices)
- Better understanding of how the company works, where the greatest expenses are and which are the most productive areas.
Although management requires investment in consulting, HR, softwares, is a fundamental part of the company's success and achieving the profitability goal.
