With the high price of land, it’s easy to get scared off a journey in agriculture. But with some determination and wisdom, anything’s possible. In fact there are plenty of people who have turned very little initial capital into a flourishing agricultural business.
We’ve identified five critical steps to follow to get things started or progress your business from where it currently is. Don’t rely on ‘hope’ as your strategy—plan for success.
The importance of goal setting is well known and documented. If you’re unsure where to start, ask yourself questions like Where am I headed? and What is it I actually want? You will be constantly presented with opportunities and decisions and if you aren’t clear on what you are working towards, you’re more likely to make bad decisions. Not having a clear goal in life is a lot like playing darts…blindfolded…at 3am…after an enjoyable BBQ at a friend’s place. If you don’t know where the target is, no throw will be good enough!
This is critical for two primary reasons. Firstly, to increase your savings so that you are actually able to invest in something. Secondly, to demonstrate to investors (banks, JVs, equity partners etc.) what you’re capable of. There are two aspects to good financial discipline:
What is your money story? Where does your money come from and where does it go? Sources of income could be wages, dividends, profits, passive income, the list goes on. If you’re a wage earner, consider splitting your expenses into two categories: mandatory and discretionary. Mandatory expenses are those costs that you’ve got to spend each month/year and have little choice on. These will vary depending on your circumstances, but might include insurance, phone bills, medical costs, groceries and loan repayments. Discretionary costs are those that you choose to indulge in, such as grog, tobacco and recreational travel. This is a strategy we’ve passed along to many people, who often tell us it highlights things they didn’t realise, such as how much they spend on counter meals or a casual gamble. If you’re running a business, get to know your direct costs in great detail.
Who and what gets paid first at your place? Is it mandatory expenses, discretionary expenses or your savings? We recommend paying yourself first, which means that you take a portion of your income and put it into savings first, before looking at your expenses. Read the book “Richest Man in Babylon” by George Clason and apply the rule of thumb of at least 10%. One reason for this is that we tend to spend what we earn. If you are only earning $20,000 a year, then put away $2,000. If you are earning $65,000 then save at least $6,500. If you can’t save a portion of what you earn, you will never fatten your purse.
Once you start monitoring your finances, keep an eye on what happens to your net worth every year. Net worth is the value of what you own (assets) less the value of what you owe (debt) as seen on a balance sheet. Your net worth should increase every year. It can increase via savings, increase in asset value (e.g. land or investments), or by debt reduction. Track your balance sheet on a spreadsheet across the years. If you’re reading this, there’s a high probability you’re a person who believes in growth and will kick some goals in your lifetime. Tracking your net worth is a great way to see what you’ve achieved, stay focussed and consider your financial decisions. Consider this. A beggar on the street with $20 of loose change could potentially have a greater net worth than someone who borrows $50,000 to buy a car that is worth $45,000 once they drive it away from the car yard. Now ask yourself the question: ‘How will I increase my net worth?’.
In the wise words of Benjamin Franklin, “an investment in knowledge always pays the best interest”. Regardless of where you work or who you work with, there is something valuable to learn if you are looking for it. Sometimes that valuable lesson is getting a clear picture of what you don’t want to do. If you’re an employee within a business, consider what you have done in the past 12 months to improve your worth. If you want to be paid more, so you can save more, then you need to be more valuable to the business.
If you have the goal of owning and running a property, then you will need a pretty good skill set to know how to do it successfully. For an agribusiness, you’ll need good skills in people, land, production and business management. Get hungry to learn as much as you can from wherever you work. Look to take on more responsibility and take your skills to another level every year. You don’t want to wait until you have a business to figure out how to run it!
This final point is here to remind you of what you are aiming for. What are your goals, targets and dreams? If you lose sight of what you want, then it is really easy to go off on a tangent when an obstacle or distraction gets in the way.
The harder you focus on something, the more likely you are to find ways to achieve it. Steve Jobs summed it up well when he said “If you are working on something exciting that you really care about, you don’t have to be pushed. The vision pulls you”.
Focus on these 5 steps and we’re confident you’ll do well in your future business endeavours. Good luck and as always, give the RCS team a call if you need a hand.
Author:
Chief of Delivery
Related:
Have a listen to The Farms Advice Podcast interview with George Stacey, discussing how to create a profitable farming enterprise.
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