By Jim Casler
When considering benchmark data, the three important items to consider are accuracy, timeliness and applicability. The Benchmarking Part 2 article discussed accuracy of industry benchmarking data and the Benchmarking Part 3 article explored the timeliness of industry benchmarking data. The significance of using benchmark data that is relevant, or applicable, to your business and industry cannot be underestimated.
Different industries, different locations, different business models and different sized businesses have their own peculiarities and oddities that need to be considered when benchmarking your business operations. Different land costs, shipping costs, tax rates, length of growing season, number of degree days, etc all impact measures of performance.
For example, it might seem obvious that there isn’t much value in comparing the financial and operational performance of a 1,500 acre apple farm in New York to industry data for small manufacturers in Arizona. They’re totally different businesses, industries and location.
While the above is an exaggerated example, what about a 2,500-acre dry land row-crop producer in central Iowa comparing their business performance to industry data for specialty corn seed producers in Southern Michigan between 3,000 and 7,500 acres with 62 percent of their ground under water from 2013? Ah-ha, a little trickier, no? While this example certainly gets you much closer to an apples-to-apples comparison, it’s still not the most relevant information available. As an Iowa producer, you’d want to benchmark yourself against other Iowa producers, preferably to similar-sized operations in the same and neighboring counties.
To maximize the effectiveness of analyzing your business with benchmarking, the comparative industry data needs to closely correspond to your specific business – you know, apples-to-apples. Sometimes the data is readily available from a variety of sources. Other times, especially in small segment specialty ag markets, the data is much more difficult to obtain. The next installment in this series will look at how to obtain accurate, timely and relevant industry information followed up with discussion on what to measure.
Jim Casler is president of North Coast Ag Advisors helps family-owned farms with business planning, financial analysis and succession planning services.
