Labor Pains

CFOs for Hire

Elizabeth Williams
By  Elizabeth Williams , DTN Special Correspondent
Chief financial officers or controllers go beyond paying bills. They should interface with lenders and help you assess key decisions such as what you can afford for rent or when to trade in your combine for a new one. (Photo courtesy of John Deere)

CAPTION: Chief financial officers or controllers go beyond paying bills. They should interface with lenders and help you assess key decisions such as what you can afford for rent or when to trade in your combine for a new one. (Photo courtesy of John Deere)

INDIANOLA, Iowa (DTN) -- Some proactive corn, soybean and livestock operators know they've outgrown their on-farm bookkeepers. Given demands for accrual accounting, monthly budget updates and "what if" scenarios should the farm economy continue to stall, they're hiring professionals.

When three large Midwest farmers couldn't afford to hire a chief financial officer individually, they decided to band together and split the cost. For a total of $150,000, they recruited a certified public accountant who had been a controller at a small manufacturer, hired a secretary, rented office space and offered a 401(k) retirement package.

What they got was someone to input all their cost accounting on each separate operation, track budget versus actual expenses/income, keep tabs on vendors, conduct feasibility studies and benchmark each other. The three operations include 5,000 to 10,000 acres of land, grain elevators, trucking and chemical and feed sales. (They were willing to share their hiring details with DTN if they remained anonymous.)

Their new employee had been working 60-70 hours per week making $120,000 to $130,000 per year, had two children ages 9 and 11 and a husband with a good job. Working for the farmers, she took a pay cut down to $75,000, but she only needs to work 30 hours per week and she can pick the hours.

Russ Keast in Henderson, Iowa, had a similar experience when his new banker required monthly financial statements. His operation includes cattle, hogs, corn, soybeans, custom feeding, trucking and short-line equipment sales. Keast was able to hire a CPA who wanted part-time, flexible hours, so she could be home with her four young children. "She comes in on the weekends and in the evenings. She can bring her children with her if she needs to. It's been a great fit," said Keast.

OUTSOURCE A FIRM

Adron Belk, who farms in Cleveland, Mississippi, knew he didn't have time to keep track of every penny on his corn, soybean and rice farm, so he outsourced the job. He retained Alan Grafton, a farm financial consultant, who is now part of K-Coe Isom, an agriculture accounting and consulting firm.

"Every farm is different," Belk explained. "You can't use generic averages when you're making management decisions." Belk grew up on a farm and graduated from the University of Mississippi with a degree in finance and real estate, but knew when he was stretched thin.

"If Alan can keep track of the financial numbers, that allows me more time to concentrate on what's happening in the field," Belk said. Since 2008, he's grown his farm operation from 400 acres to 3,300 acres.

"With Alan, I know my breakevens down to the penny. Marketing is one of the hardest things to do. Knowing my exact breakeven has made me more comfortable pulling the trigger on crop sales," he added.

"Just this fall, a farm next to me came up for rent. I picked up the phone and asked, 'Alan, what can I afford to pay in rent?' I gave him the specifics on the farm's production potential and irrigation costs. He gave me a number I would be comfortable paying, and I got the farm rented knowing it won't set me back financially," said the 26-year-old Mississippi farmer. "Alan has saved or made me more money than I pay for his services each year."

CONTROLLER DUTIES

In accounting terms, you're actually hiring a "controller" rather than a CFO, explained John McNutt with LattaHarris CPAs and Accountants in Tipton, Iowa. "A controller captures and controls financial information, and often maintains the check registry and interfaces with the operation's accountant and lender. A CFO generally takes more of a management decision-making role and oversees the office," McNutt added.

"Farms approaching $5 million in sales, depending on how complex the operation, would be well-served by hiring a controller," he said. But full-time ag controllers might not be that easy to find.

"If 2% of DTN's readers hired a controller, they would soak up the entire inventory of CPAs or former lenders with an agriculture background looking for a controller job," McNutt surmised.

Large accounting firms, such as LattaHarris and K-Coe Isom, offer the service. Or, as our Midwest farmers found, you may be able to find a former lender or CPA looking for flexible hours.

As loan criteria tighten, controllers may be in higher demand. "Lenders like dealing with Alan's clients because they have confidence in the numbers," noted Belk. "My banker knows I am using numbers from my farm, and not university averages."

BEYOND TAX SAVINGS

Not all accountants would make good controllers, warned Grafton. "Many accountants are there to help you get your tax liability down as much as you can. But you can't take a tax return and determine if you made a profit," he explained. And, said Grafton, you definitely need accrual accounting to keep track of "crop years" not tax years.

Also, a bookkeeper is not a controller, although you do need someone to keep the books and pay the bills. "If a farm client already has a good bookkeeper, we may just do the analyticals for them," Grafton noted. "If you expect a CFO to keep the books, you have a high-priced bookkeeper." A good controller can offer advice on the growth of the business and know how to talk to your lender.

"Sometimes you just need a good sounding board," said Grafton. "I had two calls this week, 'I'm thinking of trading my combine. Here's what they are offering me. Should I keep my old one or trade?'" Grafton can factor in what their potential repair bills tend to be, other costs, depreciation, paying cash versus borrowing versus leasing and give them a pretty quick answer.

It all starts with good numbers. "The biggest problem is a client comes to me with an issue and I say, 'Show me your last three years of accrual financials,' but they don't have a data set. They only have university averages," said McNutt.

Even the best controller cannot come in on day one and know everything about your operation, noted Peter Martin with K-Coe Isom. "It takes time to identify the challenges. Why is this entity attached to that entity? There are a lot of moving parts and it may take 20 little changes rather than one specific change to get your operation running at full throttle," said Martin.

"With all the money being transacted in a farm operation, I'm just glad I have someone who keeps track of every penny and can tell me how I compare to other similar operations," said Belk. "It helps me make better financial decisions and it keeps me growing my business."


EDITOR'S NOTE: In this occasional series, DTN details how to recruit and retain a talented farm labor pool. Read past installments at http://www.dtn.com/…

(MZT/ES/AG/CZ)

Elizabeth Williams