By being accountable to their budgeting practice, Clarence and Elise Stolte have managed to drive their cost of production down and regularly monitor variances against it using a graphic ‘budgeting worm’. Jackie Harrigan reports.
They say a good marriage is not marrying the right person but being the right partner – but it seems Clarence Stolte found absolutely the right woman when he married Elise, who was working as an accounts clerk and now runs the finances of their growing dairying business.
That’s not to say she isn’t totally the right partner as well as a great supporter and mother to their four children. But each partnership needs people with different strengths. Clarence is the innovator and driver and Elise is the calm, orderly and attention-to-detail partner who accurately codes the accounts, monitors the budget and keeps the financial side of the business ship-shape. Clarence is onfarm across their Wiltons Road and Riverslea Wairarapa dairy farms overseeing the production of low-cost milk from the 950 cows and encouraging the farm team to higher efficiency and great profitability.
The home operation at Wiltons Road, West Taratahi belongs to Clarence’s parents, Willem and Roelie and after the past 10 years managing, lower order and 50/50 sharemilking, the couple are setting up to buy into the business as land-owning equity partners. Winter milking 200 cows means split calving but winter pasture growth allows them to even-out the challenge of milking through the dry summers on the light soils.
Their second 50/50 sharemilking job north of Masterton milks a 450-cow seasonal supply herd for NEER Enterprises and Clarence says while they are producing cash in the sharemilking jobs their focus is on building their landholding in the Wilton’s Road property each year.
Over their farming career Clarence and Elise have focused on making farm surpluses by setting realistic budgets and then being accountable to those budgets.
‘It’s amazing how low cost you can be if you really want to – start from zero each line and put in what you really have to have. Then you can put in a few extras – things that will make you money and drive a better return.’
“It takes a lot of work to put together the budget – especially at the start when you can’t just pull in numbers. You need to think about what system you are going to run and what does it cost?” Clarence says.
“Begin with the bare bones.”
“It’s amazing how low cost you can be if you really want to – start from zero each line and put in what you really have to have. Then you can put in a few extras – things that will make you money and drive a better return.”
For example, machinery that saves labour, or upgraded bikes because the old ones are bleeding money for maintenance.
“It’s not all about the dollars – expenses that look after people and increase their work enjoyment, like good gear, are allowed too.”
The next bit is the accountability and Clarence says a budget that doesn’t work is either because it wasn’t set up realistically or the accountability isn’t there.
They make accountability to the budget and variances from it a “team project” and have found it engages staff to think about ways of meeting the budget if they are more involved in being accountable.
Achieving accountability is about having timely information – not too far after the fact to control – and understanding the numbers.
Elise codes the accounts monthly and has a deadline to achieve it before the monthly all-team staff meeting on each property that she and Clarence run.
“The key staff meeting is in the diary at 10-12th of each month and I have to have the accounts coded by then so we can produce Cost of Production trackers for each dairy unit,” Elise says.
Making coding accurate is an ongoing process, Elise says, one that has improved over time.
“Now that I am on top of the system I can be a bit more deliberate in the coding and breakdown of the codes, and choose the things that need breaking down.”
At monthly meetings with landowners and farm managers Elise and Clarence go through all the bills and split them up and scribble all over them to say where the charges need to be coded.
Being a member of the Dairy Women’s Network has been invaluable to learn how others do it and she values the fact that she and Clarence have a directors’ catch-up monthly where she can run through the issues.
“I have seen a lot in the past that the person buying the stuff is not telling the admin person what it is and where to code it.”
Information flow is open and constant in the Stoltes’ business.
“Miscoding can cause cutbacks in other lines that are necessary and that can cause problems.
“Accountability starts to become more real when the coding is correct.”
Elise does such a good job of the finances she now does a fair bit of number-crunching for their land-owning farming partners.
“We are lucky to have cool farm owners who want us to do our best – we run their figures and show them how good the partnership is for their figures and business as well. We have earned their trust over time.”
Tracking the worm
The monthly staff dashboard meeting has a budget component, when the Stoltes put up the worm that tracks the budget vs. expenditure. They then discuss the variances underlying the worm’s progress.
Having a visual and graphic representation at how accountable they are being to the budget gives the staff an understanding of how the budget is put together and of how they can help.
“I am a very visual learner – and I think most of our staff are – so first we look at the worm and see how close or far away we are. Then we look at the actual variances on the Cashflow report so we can understand and explain all the variances,” Clarence says.
“At the end of the day it’s our business but it’s a business they all work in and they want to help keep it on track.
“Showing the detail of how the budget is made up and how they can help to be accountable to it means we get great buy-in. We want to be in the top 5% across all areas of the business and the financials have to support that.”
Wiltons Road, Carterton:
500 cows, 200 winter milked, 165ha effective, half irrigated, but water unreliable.
50/50 sharemilking for Willem and Roelie Stolte, 195,000kg MS
Clarence, plus two team members and another over calving
Riverslea: north of Masterton
450 cows, 135ha, fully irrigated, 170,000kg MS,
50/50 sharemilking for NEER Enterprises
Grass platform with only 30t supplement
Clarence, plus two team members plus another over calving
Dashboard meetings – How they roll
Team meetings are diaried for each month and all of the team are present. The meetings follow a similar agenda each month.
<blob>Tracking the worm: comparing the actuals with budget figures
<blob>Focus area: each meeting the drill down into a seasonal focus area: eg: minimising pasture damage in winter, in-calf rate in late spring. A team discussion involves everyone, with maybe some expert input then the team comes up with strategies of how to do it better.
<blob>KPIs: Staff put forward topics – levels of performance or production targets for the period, in-calf rates or whatever is pertinent at the time. Having targets and tangible goals is good – what does good look like? Is the team meeting KPIs? if not, how can they improve?
<blob>Health and safety: Issues, incidents and accidents, check the equipment, assign things that need to be implemented.
<blob>Jobs List: Outlining jobs for the next month so staff are all aware of what is going on.
Despite two farms and four young children, Clarence and Elise try to have monthly off-farm directors meetings, usually at a café armed with their laptop but without the children. Olivia, 8, Charlie, 6, and Adelaide 5 are at school and Huey is just 10 months old. This allows them some clear head time to look past the budget and plan for the next few years.
Adjusting for the impacts of things that have changed, the pair take minutes at their meetings with action points and time frames to help them commit to getting them done.
They also review their system strategy and decide what level they want to farm at.
“We focus on having a budget that weathers the volatility in the pay-out – we have the potential to be high-output operations but we are keeping things pretty simple and low cost.”
“Your budget needs to be based around your system and making a conscious decision to change system or spend more dollars is a big decision – one people tend to make too lightly,” Clarence says.
“We run a pretty lean system on what we spend, even if the payout went to $7-8/kg MS, we would stick to the same lean cost system.”
The couple say they have come to a status quo situation and are now focused on buying a stake in the land, with the right pathway to do it, two low-cost sharemilking jobs generating good cash flows.
Dairy System Monitoring
For onfarm budgeting Clarence and Elise use the CRS Cash Manager Rural and 1 Drive for cloud–based storage. For benchmarking they have been members of Baker Ag’s Dairy System Monitoring group for a few years and make good use of monitoring their physical and financial targets against members of the group. Clarence and Elise are now in the top five of the DSM group for $EBIT/HA.
The service comes at a cost, but Clarence says they get great value out of being able to compare their operation with the 38 other farmers in the group scattered from the Wanganui region down to Southland. Lower North Island is home to 25 farmer members.
“The DSM is a big learning community as each area will have someone different performing at the highest level and because they are all named, we can access them to learn about how they get their results.”
The community aspect and openness of the DSM group is unique to the group, DSM director Chris Lewis says.
“DSM has been going for 18 years and while other groups exist, not many others name their members so that they can all learn off each other.”
Clarence says he makes a point of getting along to any networking opportunities or industry days run by the group, and for in between times he is quite happy to pick up the phone and give someone a call. In the future he thinks an online forum might be a good way of interacting with fellow members.
“The strength of the DSM system is that the figures are real, the model is Farmax-based and the comparisons can help you to learn from others. “
Chris Lewis would like to see a third of New Zealand dairy farmers engaged in a benchmarking group, instead of the barely 10% involved now.
The Wairarapa-based dairy consultant and developer of BakerAg’s Dairy Systems Monitoring benchmarking service is a great believer in the power of farmers being able to compare themselves against others – via accurate and validated data.
“Most farmers run their business through the rearview mirror – always looking back at what happened last season, but more work through the front windscreen, working with the season they are farming in, allows them to make more timely decisions,” he says.
“When you are working live you have still got the chance to change things – to actually do something about it.”
The strength of the DSM system is that the data is easy to supply, filling in a one-pager called the coffee cup sheet, updating pasture, feed, cow numbers, sales, deaths and nitrogen applied in less time than it takes to drink a cup of coffee.
Farmax is used as the modelling tool and data from the coffee cup sheet updates the model then reports back to farmers to give them an idea of what is happening in their business each month.
The individual monthly report for each farmer looks at the drivers in their business and through comparison with others, gives an idea of what their potential is, Lewis says.
“We describe it as a multi-tool,” he says, “with the physical and financial information and monthly targets, it also gives them discipline around reporting and it can be really useful for historical information and farm sales.”
“Because it’s an independent service the data has validity and credibility.”
An annual report gives farmers a sense of the strengths and weaknesses of their business and provides issues for follow-up consultancy advice. Regular networking opportunities for group members allows informal discussion of the results and the reasons for them.
After 18 years of collecting data the set has huge industry good information potential, and gets used for comparing difference groups and systems for conference papers and to understand bigger issues like irrigation.
Lewis is at a loss to explain why more farmers are not benchmarking, saying it’s maybe that they don’t like the admin and form-filling or they don’t want to be confronted about their performance on a monthly basis.
“There has been a culture in the dairy industry of using the vat to benchmark, but now due diligence should be around financial performance first and physical performance second especially with added environmental constraints coming in.
“We have moved a long way in the past five years. Most farmers now have an idea of their cost of production, which will encourage them to become engaged in benchmarking.
“All dairy farmers should get involved in it.”
Lewis’ future for benchmarking:
- a growing demand for live benchmarking
- improved technology for collecting the data, less time consuming
- environmental indices to come
- more activity from vets collecting repro and animal health indices
- increased analysis of results and ways of formulating next steps at farm level.