No matter how much you enjoy working and living on the land, it can drag you down if the profits aren’t right. The financial side of managing an agriculture business isn’t everyone’s strength, but it’s essential to keep things afloat. Profits can quickly turn upwards with a bit of shared wisdom and some changes, reducing stress and improving the quality of your life and farm.
Trading profitably as an agricultural farm is becoming increasingly complex with external pressures. Good farm financial management starts with understanding the main drivers in your business. This will vary depending on your enterprise mix, location and individual goals. You then need to ensure good record keeping, an essential tool for analysing profitability in an agribusiness and ensuring you are on the right track.
Looking at the Three Secrets of profitability as identified by RCS and working out which of the three are working and which are not. Build on your strengths and cut out any dead wood weighing down the business. You can do this in our Business Fundamentals Workshop or Farming & GrazingforProfit program.
Profit drivers in a business are the factors that greatly influence profitability. Though every farm is different, some profit drivers are common to most agriculture businesses. Through analysing hundreds of businesses through our analysis and benchmarking tool, ProfitProbe®, RCS has identified the ‘Three Secrets of Profitability’. These are; reducing overheads, increasing gross margin and increasing turnover. To learn how you can affect these three profit drivers, we’d recommend attending a Business Fundamentals Workshop or Farming & GrazingforProfit.
Get clear on the vision and goals you have for your business. Once these are in place, develop the strategies and tactics to get there. To best achieve this, you’ll need to know how to calculate a gross margin and understand your own numbers.
Farm budgets and forecasting start with understanding the current situation and what you have right now. For a particular time frame, get clear on your expected purchases and sales, activities that need to be completed and approximate costs to complete all of those activities.
Management accounting is necessary to get the full economic picture of what is happening in your business. Keep good records that are easily retrievable and interpretable by anyone in the business and set up a chart of accounts so that costs can be allocated to divisions and enterprises. Lastly, do your own balance sheet using management figures.
It may all seem daunting to start with, but once you get the swing of things, it will pay off many times over.
Always start with your WHY. This is the basis of your goals and vision for the business. Goals need to be in harmony with the vision, and then you need to define actionable steps to achieve the vision. These actionable steps will form your strategy, tactics and operational details.
To make changes, seek out people who have already made the changes you want to make and clarify the principles they followed to get there so you can apply them to your own situation. Never underestimate the value of a mentor to bounce ideas off, no matter how skilled and experienced you are.
Do you need support with your business plan and strategic direction? Our Advisors are experts in creating business plans and strategies that work for you.
RCS’s benchmarking and business analysis tool, ProfitProbe® (part of the FarmEye suite of services), is the best way to benchmark your own agriculture business against others. The dataset in ProfitProbe® contains over 5,000 business years of data across various agricultural industries, including grazing, broadacre cropping, cotton and sugar.
The most important thing to do is to separate your office from the rest of the home. Many people set up their books on the dining room table, creating a blur between personal life and work—which means no time or space to disconnect. Once you’ve found your space, ensure it’s comfortable so you can work to your best. If you set up multiple screens it can make it easier to see everything at once. For more recommendations, come along to our Business Fundamentals Workshop.
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