NOT Just Another Software Program
Something had to be done. Change was imperative. Andy Young
knew he needed to "effectively drill down and manage business operations" for
his growing dairy operation, Red Knob Farms. But what tool was available to
help Andy and his management team revolutionize their management processes and
provide the necessary detailed data analysis? The answer, recommended by trade
journals but to date adopted by few dairy farms, was clear: a transition to managerial
accounting and reporting.
The Operation
Red Knob
Farms is a third-generation dairy operation, a family business with 20-25
workers. Red Knob's five-person management team is young; their average age is
just 25 while the industry-wide average is 55. Levels of responsibility vary
within the business, as older members now find more time for leisure activities
such as fishing, hunting and traveling.
With 900
milk cows and 900 heifers plus harvesting 1000 acres of forage
from no-till, intensive double-cropped farmland, Red Knob Farms is a thriving
operation. Having recognized the need to move into managerial accounting, the
management team carefully examined all options before
selecting AgriSolutions, Inc (ASI). As Andy explains, "AgriSolutions, the best we
can tell, offered the best opportunity
to move to managerial reporting." After
initial talks in late 2004, Red Knob Farms acted quickly, signing on at the
start of 2005 to become one of the first dairy operations to join
AgriSolutions, Inc.
The Transition to Managerial
Accounting
True
activity-based managerial accounting is new to the dairy industry. Red Knob
Farms is proud to be one of the first farms in the country to "go down that
road." Previously, this operation had used the accounting software provided by
the Pennsylvania Farm Bureau's Financial Services.
The transition has been somewhat
difficult, mainly due to the need for
the operation's management to re-think the way it looks at accounting. Another
challenge has been that, as pioneers in managerial accounting for dairy operations, Red Knob Farms did not have
models to follow and learn from.
While they have been learning, with
the help of AgriSolutions, the specifics of managerial accounting and its
application to their dairy operation, ASI
has been busy learning more about
application of its processes to the dairy industry. The transition was carried
out successfully, a "work in
progress." With some additional ideas
provide by Penn State Dairy Alliance and the recently formed
Northeast Dairy Financial Standards
Counsel, Red Knob Farms and AgriSolutions Inc. are blazing the trail so that
the transition will be much easier for
those dairy operations which follow.
The AgriSolutions
Package
AgriSolutions
Inc. is not just selling a software program. Instead, ASI
is offering a package that includes people like Allen
Lash and Daryl Pohlman, men with a strong background in finances
and agriculture. Andy credits Allen and AgriSolutions Inc. with "leading the
charge on the managerial side of financial standards for
the agriculture industry."
Access to
the experienced and capable AgriSolutions team is as valuable to operations
like Red Knob Farms as the software. Customer service is a very important part
of the package; ASI personnel have good understanding of both the software and
accounting, and they are always available to share their expertise.
It is the
"total package" that makes AgriSolutions Inc. so valuable, much more than just another software program. Other
companies sell software, then leave customers hanging after their purchase. AgriSolutions
customers get not only the software, but also updates, the wealth of knowledge
and experience of the team, and reliable service through their annual
subscription-based program.
The Payoff
The
AgriSolutions software is NOT a simple bare-bones accounting system like Quick
Books. In any software system, the information
you get out is only as good as the data you put in. Managerial accounting does require some
additional data to use it to its full potential. As Andy explains, "You
must put data in to get information
out." Now, for
the first time, they feel they have a strong grasp on what the data means.
Red Knob
Farms has found that, with use, they are learning how to gain more and more
valuable information from the program. Now the program is providing to their
operation the detailed information they had been lacking, a need that prompted
their transition to managerial accounting.
Andy and
his management team have found that AgriSolutions, Inc. provides distinct
advantages in the management of their operation. Some specific examples
include:
1) Detailed information
readily available
1. Andy can now determine exact
costs per cow milking. Every time a cow steps into the parlor, management knows
what it costs to harvest the milk. The cost per cow milking may be up 2 cents
over last month. That does not sound like much, but when the operation does
2,000 milkings per day, it is important information.
The Parlor Manager is responsible for
schedules, procedures, inventory,
etc. With information provided by
AgManagerÒ,
he can look at that activity center as one little business, considering labor, supply, utility costs, number of cow milkings,
etc. as he makes daily decisions.
2. For
the first time, Red Knob Farms' managers know in substantial detail the true
cost of growing replacement heifers compared with the cost of buying them.
3. Now cropping costs can be
determined. Before, managers never
knew the exact cost to the operation of growing corn
silage or rye silage.
4. Now it is possible to know the
exact cost to store, mix and deliver
feed. It was always possible to determine the price paid for feed, but not the costs for
storing, mixing and delivering it (with
costs figured in for loaders,
mixers, trucks, and labor costs). The manager responsible for feeding activities can now see the financial
consequences of every decision he makes.
2) Activity center
managers and big-picture financials
A goal of Red Knob Farms is for each front-line manager to be in touch with the
big-picture financials. This is also a work
in progress and required a shift in thinking for
staff.
3) Separating
financial info and allocating costs
Like all
dairy operations, the Red Knob Farms operation is made up of many activity
centers: milk harvesting, parlor
costs, replacement growing, maintenance and others. AgManager® differs from
other accounting tools in that it allows management to separate out financial
information based on activity centers
and to allocate costs from one activity center to another.
For example, for
the Red Knob Farms maintenance center, costs can be allocated up through each cost
center that uses maintenance. The number of hours spent by maintenance workers in each center can be allocated, just as
would be done if maintenance were outsourced. As costs are allocated up through
the system, a clearer financial picture is provided for
each activity center.
4) Benchmarking
Red Knob Farms has been involved
with the Northeast Large Herd
benchmarking study. Because only a small
portion of the dairy industry is
using managerial accounting, benchmarking is difficult. However, over the past
two years, the question is being heard: Can we (dairy operations) start to
benchmark on a managerial basis? There appears to be movement within the
industry in that direction and Andy believes it may soon become a reality with
AgriSolutions new AgIQTM database for
operations with managerial accounting data.
Red Knob Farms is ready; AgManager® provides the detailed reports needed for
benchmarking.
The Future
For dairy operations, using managerial accounting is
a whole new way of doing business. But they have not been left to make the
transition without help. As Andy explains, "AgriSolutions Inc. is walking that
road with us. They did not just pat us on the back and send us on our way.
Otherwise, we could be in WAY OVER OUR HEADS."
Andy sees
great potential for managerial
accounting as he guides his dairy operation into the future. It requires changes not only in our thinking
and accounting methods, but we must also change the way information is collected (vendor
invoicing, vendor information tracking, labor
tracking, and more). And that is a
good thing for us."
Collection
of additional information allows their management team to have a strong grasp
on specific data. Andy expresses his enthusiasm for AgriSolutions and
AgManager® when he states, "The ability of this software to incorporate that
detailed information is powerful. I believe that this is the MOST POWERFUL tool
for agricultural managerial accounting today."