In this blog post David McLean and Matt Barton from RCS discuss the importance of financial literacy for agribusinesses, particularly in managing market variability. They emphasise the need to differentiate between gross margins and profitability, focusing on analysing overheads and enterprise comparisons.
Furthermore, they highlight the value of regular management accounting and the control it provides, advocating for informed decisions, ultimately reducing stress and improving profitability.
Let’s Go.
Taking Control: Navigating Market Variability in Agribusiness
In today’s ever-fluctuating agricultural market, where prices and input costs are constantly shifting, maintaining financial control is paramount. David McLean and Matt Barton from RCS recently shared insights from our RCS ExecutiveLink® program in Dubbo, NSW, focusing on equipping agribusinesses with the tools to navigate these uncertainties. The core message? Understanding your financial position and taking decisive action is crucial for profitability and stress reduction.
One of the key distinctions they emphasis is the difference between gross margins and profitability. Many in the industry mistakenly equate the two. Gross margin analysis is essential for comparing different enterprises within a business, revealing which ones are performing and which are not. Often, businesses spread themselves too thin, managing numerous enterprises with only a few contributing positively to the bottom line. Simplifying the business and focusing on the profitable enterprises can lead to immediate and significant improvements.
However, gross margins alone do not paint the complete picture. As Matt Barton points out in the video, “Gross margins are to compare enterprises.” They represent an enterprise’s contribution towards covering overheads, finance, interest, and taxes. Profit, the ultimate goal, is what remains after these expenses are accounted for.
Overheads, often referred to as fixed costs, are another critical area of focus. McLean and Barton stress that these costs are not truly fixed; they can be managed and restructured. Many businesses struggle with a poor overhead mix, hindering their ability to generate profit. By analysing and optimising overheads, businesses can become less reliant on favorable market conditions and seasonal fluctuations, factors largely outside their control.
The importance of regular management accounting cannot be overstated. While tax and cash flow management are essential, they do not provide the same level of insight into profitability. As David observed, “Unless you’ve got somebody external prompting you to actually genuinely analyse your management accounting profit, it doesn’t happen as much as it needs to.” This highlights the value of external perspectives, like those offered by RCS, in facilitating objective analysis.
One of the success stories shared by David and Matt involved a participant in the ExecutiveLink® program who, after implementing their systems, found it quick and easy to extract and analyse financial data. This enabled them to make truly informed decisions, a stark contrast to the common practice of relying solely on tax and cash flow information.
Recognising the need for accessible financial education, RCS offers Business Fundamentals workshops, available both online and in-person. The online version, spanning 12 weeks, provides participants with ample time to reflect and apply the concepts to their own businesses. The in-person, three-day course in Brisbane (May 6-8, 2025) offers intensive, face-to-face learning. Both formats aim to equip participants with the skills to gain control of their finances and reduce stress.
The message is clear: proactive financial management is not an optional extra; it is a necessity. By understanding the nuances of gross margins, overheads, and profitability, agribusinesses can navigate market variability and achieve sustainable success. As David and Matt emphasise, “Not having your finger on the pulse of your business at the moment could be costing a lot of money.” Investing time and effort into financial literacy is an investment in the long-term health and prosperity of your agribusiness.
Like to know more? Start by calling our office on 1800 356 004 and ask to speak with our Chief of Delivery David McLean
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