Building Profitable, Sustainable Farm Businesses




(These comments would probably apply to many businesses, not only farming)

We must assume here that right at the outset you have had a good apprenticeship and you are not unduly under-capitalised for the pathway you have chosen. In New Zealand around 75% of all businesses that fail in the first five years are because of one or both of these issues.

  1. Both spouses need to have significant horsepower and a passion for agriculture, particularly in these times when a whole raft of issues are coming downstream at you.

  2. In years to come, if things go well, you can perhaps loosen up somewhat on the purse strings but almost certainly not in the first five to ten years – managing your business with no money is an essential attribute for this period – for both spouses. You need to get used to your overdraft looking like a telephone number.

  3. Over this ten years or more period the cash result and the true net profit/net loss result are very often quite different things – your banker, your accountant and your farm advisor will each be talking to you in a different language. Why is this? - because of farm development, increased livestock numbers, special fertiliser, regrassing, water supply, irrigation, new buildings and the like. You must not fight this – you must learn these languages and use them to your advantage.

  4. You will get absolutely sick of hearing the word ‘budget’ and the phrase ‘cash flow management’ but early on cash flow control is second only to breathing. What does the abbreviation CFIMITYM mean – ‘cash flow is more important than your mother’.

  5. High personal drawings will slow you down for years but insufficient funds allocated to this key area will also cause major potential domestic problems – a balance is required.

  6. You and I need to be viewed in the community as a preferred employer – get on top of this attribute because it can pay big dividends over time. Almost invariably you cannot do all the work yourself.

  7. Listen to the crackerjacks in your sector at every opportunity - put on your listening and learning overalls. You don’t need to like them but you do need to respect them – the top operation in almost every business field usually has a very low advertising budget and that is why you need to get on their farm and go to their discussion days. How will you learn the most from them? - by face to face asking them the ‘what if’ type questions. That is, if they had another chance to change their decision on what or how they did something would they in hindsight do anything differently.

  8. Do your homework before spending your hard earned cash. Don’t spend anything until you are quite sure you understand the cost, the implementation issues and the probable result. Often I find it is better that you do the homework and get your advisor to then look over your shoulder rather than the reverse approach.

  9. Remember the only difference I have long found between the top 10% farming sector and the next group down is in their timing.

  10. Inside your own financial results you need to live your key financial and production benchmarks - just understanding them is barely enough. Why? - because constantly breaking one key benchmark is very expensive and represents poor management. It may take some years to get on top of these issues but the point is crystal clear. If you are constantly breaking two key benchmarks then you are heading for serious financial trouble. That is what I have found over some 35 years and I have had about 35 cases over that period who have found that breaking the key benchmarks like this swamped them completely.

  11. Remember if you find your advisors difficult it may well mean that you have very good advisors.

  12. Keep educating your children to the best of your ability. Education is about lighting fires and is the ultimate benefit of all of your hard work, thinking, pain and planning. Education costs are up there with fertiliser, grass renewal and people management as regards their relative importance.

  13. Borrowing if you have to for some key family education costs is worth looking at because of its importance. Around the world unemployment issues are getting more serious – you and I need to encourage our children to build up their skills because this is their future. All of this needs to be well discussed and as much cash squeezed out of the farm budget as possible during the years the actual costs are incurred to reduce any borrowings.

  14. It is absolutely imperative that you are getting top class accounting, legal, agronomy, banking, medical and animal health type advice. There is no halfway house here – don’t just carry on with mum and dad’s advisors if they are not right up to the mark. Face this issue and don’t ever continue to receive poor advice if you are sure that is what it is.

  15. Who do you need to be very careful of in today’s business environment? – the articulate incompetent – they are around, they are smart and they are breeding.

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