Farm management is not easy. It can be stressful, and it often feels like the farm is running us, rather than us controlling it.
Ask yourself the following questions:
- Do you lie awake at night stressing about running out of grass before the next growing season?
- Do you ever feel disorganised, anxious or out of control in the management of your business?
- Are you unable to step away from your business for a holiday or an emergency, because you’re not comfortable in your staff carrying out all duties effectively in your absence?
- Is it difficult to show the profitability of your enterprise and identify the specific areas where profits and losses are occurring?
- Do you feel desperate to make increasingly higher gross product sales to keep up with expenses?
The most successful farming operations have these elements in common:
- They have a plan, with benchmarks and clear action steps to achieve it, and they review their goals and actions and adjust and re-plan where necessary.
- They don’t deplete or degrade the natural resources they depend on.
- They clearly understand and can quantify their profits and losses.
5 Key Steps to Take Control of Your Farm:
- Get clear on your vision
- Create an Enterprise Breakdown
- Get rid of paper records and create a digital on-demand record-keeping system
- Plan and budget pasture and expenses
- Dynamically manage stocking rate according to conditions
It’s important to involve everyone on your team in this process. It’s unlikely that you’re a one-man management team, but even if you are, it's wise to bring some other great minds and talents into your proactive analysis and planning.
You probably don’t enjoy all aspects of running a livestock business. You may be very skilled and passionate about grazing and livestock management but find financial planning a challenge. If so, you might consider outsourcing your bookkeeping and budgeting. Not only will involving others in your vision hold you accountable in completing these steps, but you’ll be better able to focus on areas of your business where you excel, and both areas will be stronger than before.
Step 1: Get clear on your vision
Before undertaking any challenge, it’s best to begin with the end in mind. This step is habit #2 of Stephen Covey’s “7 Habits of Highly Influential People”, a book that continues to be a best seller 25 years after its release because the habits he describes are crucial for success.
Before working in your business one more day, define what the end goal is.
Whether you call it a Holistic Goal, a Statement of Purpose, a Vision, or a combination of all three; you need one. Your ultimate goal should be printed out and posted where you can see it every day. This should be a long term, big picture goal outlining your values and the quality of life you would like for yourself, your children or your loved ones.
Studies show that you are 42% more likely to achieve your goals and dreams simply by writing them down on a regular basis. Most of us would buy a lottery ticket every month if the odds were 42%. Why not treat your goals the same way?
Once you’ve established a broad, long term goal, define the critical milestones you would like to accomplish in the next three years.
- Try to establish at least ten
- From here, choose the three most critical goals that you realistically could attain in the coming year (Hint: one of those goals should be implementing the following four steps outlined in this guide.)
- This process should be repeated annually, and you should have, at the very least, monthly accountability meetings where you establish mini-goals that work toward the broader annual goals.
Creating your list of goals is a great start, but only if they’re the right goals; this is where step two comes in.
Step 2: Create a Gross Profit Analysis
The former CEO of Starbucks, Howard Schultz, coined the famous term, “Growth is not a strategy”.
Many farming businesses view achieving certain economies of scale as the ticket to profitability. Starbucks made the same mistake. They found that haphazard growth in the wrong areas affected their profits in a negative way, so they scaled back and focused on the right kind of growth. They were able to recognize this trend early and reverse the damage because they had objective data to back up the performance of their business model.
Without this same objective data that enterprise analysis provides, you may be driving yourself further into debt with enterprises that don’t pay, or you may be leaving money on the table by not doing more of the things that are working well in your business. Define your position by conducting an enterprise breakdown.
Think of this as a gross profit analysis of each revenue stream. The goal is to objectively identify the strengths and weaknesses of the current enterprises making up your business model, compare enterprises apples to apples, and to weigh the effects of diverting assets to those enterprises.
Examples of separate enterprises might be re-stockers, back-grounding, commercial stock, registered stock, forage production, cropping etc.
How to Create a Gross Profit Analysis for Farm Management
1. Identify sources of profit and loss
The first step in this process is to learn how much or how little the current forms of production are contributing to current profits (or losses). Chances are you’ll complete this process already knowing whether you’re profitable or not, but the why might be a surprise.
Often the seemingly most profitable enterprises also carry with them the bulk of the expenses and producers are shocked to learn that sometimes their main source of income is also driving them further into debt.
2. Allocate expenses
Start by allocating all expenses to one of two categories: Overheads or Variable Expenses.
Overheads are those fixed expenses that you incur simply buy owning this business, whether you produce anything or not. Overheads are things like land payments, insurance, your salary, taxes etc. If you’re not sure whether it’s an overhead (fixed expense) or a variable expense, ask yourself: “would I have to pay this bill if I didn’t have a cow/ewe/goat etc. on this farm?” If the answer is yes, it’s an overhead.
Variable expenses include vaccine, fuel, feed, equipment and repairs, utilities, interest and inputs such as fertilizer or seed). Allocate the portions of variable costs to the enterprises to which they belong. When in doubt, call an expense variable: in the long run, no expenses are fixed.
3. Calculate total income
Calculating total income is the next step in this analysis. Allocate income to the enterprises from which they originate. The hardest part about starting an enterprise analysis is deciding how to organise/(and) format your calculations. Excel is a great tool because it allows you to allocate a page for each enterprise.
An example enterprise breakdown for a farm that owns the land, bales their own hay, and runs a commercial herd of cattle would be to create three separate tabs in an Excel spreadsheet, where you list and calculate income and expenses associated with each income stream.
The above is a very basic outline that may help you get started. The important thing is to break enterprises down into manageable and quantifiable pieces. A summary page where you can see and compare gross profits of each enterprise may also be helpful in making comparisons.
From this basic outline, you can then easily create more production scenarios to compare other forms of production to what you’re currently doing.We recommend RanchingForProfit (US) or GrazingforProfit™ (Australia) as a business changing improvement to cover all the above and more.
4. Change what's not working
Find the “leaks” in your vessel, stop bailing water, and get out of the boats that aren’t staying afloat on their own. It’s tempting to try and simply improve upon what you’re already doing or try and add things to optimise the current business structure.
Sometimes this works, but sometimes it’s like putting a band aid on a bullet wound. Only you can decide the appropriate course of action for yourself and your operation, but those who are brave enough to question every decision they make, and are bold enough to change what doesn’t work, will ultimately have more success in the end.
Having this objective data is invaluable to building your analytical skills as a manager.
Step 3: Get rid of paper records (create a digital record keeping farm management system)
Paper records have a way of losing themselves in filing cabinets, never to be referenced again. But there are many tools that can make everyday chores faster, easier, and more effective. It’s important to keep your records searchable and accessible for future reference.
This is key for several reasons:
1. You may have legal obligations to retain certain records for several years.
2. You may also need to access past documents for legal reasons.
3. Your past accounts help facilitate and educate your future decision-making process.
Records are essential to diagnosing economic problems and opportunities. Without them, conducting a gross profit analysis and developing a budget is very difficult. Accurate financial and grazing records will improve your ability to manage resources and make business decisions by enabling you to fine-tune your budget and improve the accuracy of your gross-profit analysis.
There are many recordkeeping tools, software and templates that can assist this process.
Recordkeeping Tools for Strategic Farm Management
QuickBooks is a dedicated tool for financial management and recordkeeping.
MaiaGrazing offers MaiaGrazingLITE which is a powerful FREE platform for keeping grazing records and tracking pasture production, grazing history and rainfall data long term.
MaiaGrazingPRO, in addition to recordkeeping, enables you to create multiple grazing plans that are accessible from any device with an internet connection. Alternatively, you can find excellent free Excel grazing planning chart downloads, such as this one, available at holisticmanagement.org.
Advantages of Electronic Farm Records
One advantage to electronic records is the ability to be transparent with agencies, landowners and organisations you may be working with: whether it's the neighbour you lease from, an absentee owner, a consultant or a carbon offset provider. Transparency and communication are key to building trust. Don’t let a landowner you lease from wonder whether you’re being a good steward of the land. Be proactive and show them with your grazing and production records.
You can even implement a monitoring program to track ecological shifts over time.This kind of proactive communication and transparency will advance your reputation as a responsible land manager and give you a leg up over other producers competing for land leases. You will also be able to more quickly notice ecological shifts and adjust your management accordingly. Remember, the biggest profitability factor in your operation as a grass-based livestock producer is your ability to grow grass.
Step 4: Plan and budget pasture and expenses.
Budgeting your finances and pasture helps you to maximise resources, minimise waste and maximise profitability, whether the topic is grass or money - after all, they're one and the same!
Before embarking on this process, it’s important to remember your vision and goals. Planning ensures you won’t resort to old habits that maybe haven’t served you well in the past. Remembering your “why” will help you plan your “what”.
What actions in regard to your grass and money will get you closer to your goals? The very first step in both financial and grazing planning is to plan what will remain. In the financial planning realm, this is profit. In grazing planning, it's residual grass cover (the final section covers how to account for this). These two elements are the main drivers of sustainability in any farming operation.
Stuart Austin is a MaiaGrazingPRO user who manages ‘Wilmot’, NSW. He has learned to be a forward thinker who is constantly planning and evaluating his grass management strategy. In late 2017, he was faced with a major medical emergency:
“In late 2017 I landed in hospital in a critical condition, leaving my crew on the farm to manage the best they could for eight weeks, during our busiest time of the season, with over 4,000 head of cattle on hand at the time. One of the ways they managed so well through this period was the use of the Grazing Plans I’d laid out in MaiaGrazing.We run an intensive rotational grazing system, moving mobs daily, that requires constant forward planning to ensure we optimise our stocking rate to carrying capacity. There would be a lot more stress around this if it weren’t for the simplicity of the MaiaGrazing Planning tool. Combined with the forecasting tool, we are able to plan day-to-day, week to week and month to month, which in an operation like this is critical to minimise stress and optimise efficiency. I don’t believe we could run this operation as effectively as we do without MaiaGrazing.” ~Stuart Austin
Creating a grazing plan helps to maximize the coordination with all facets of the operation as well as the personal schedules of those charged with implementing the grazing schedule.
Before starting a grazing plan, there are three things to consider:
- Important Personal Events: Mark on the calendar all of the things you want to make time for such as weddings, events, vacations, etc. If you plan around the things that are important to you, you’re more likely to fit them in.
- Critical Ecological Areas: Plan to rest, or target, pastures at the appropriate times. If you have a noxious weed problem in one area, try to plan for animal impact at a time when that weed is most palatable or vulnerable to hoof impact. Or, if a riparian area is sensitive to trampling during wet seasons, make note so that turning into that pasture during critical periods won’t happen.
- Peak Nutritional Demand: Save your best forage for seasons such as calving, breeding and weaning. It’s during these periods that nutrition is important so either plan your grazing rotation, so animals are consuming quality forage, or have easy access to supplementation, during these periods.
At the beginning of each fiscal year, you should also be sitting down to prepare a budget for the production year. Prepare for bad years, hope for good years, but always count your profit first and align your actions to achieve that profit.
Profit is not your salary. Profit is what remains when all overheads, including your salary, and variable expenses have been paid. It should be 10% to 30% of your gross income (income before expenses). The biggest mistake made in budgeting is to take last year's budget and roll the numbers over to the current year. By doing that, you’re setting yourself up for another year like the last. Unless it was a wonderfully profitable last year, that isn’t a good thing!
The process of making a budget is much more valuable that the actual finished product. For maximum impact, involve all team members in the budget process to not only get their buy in, but they may have innovative ideas to help cut costs.
Step 5: Dynamically manage stocking rate according to conditions
Managing “dynamically” means to manage in a way that enables you to quickly adjust to changing variables. For many in agriculture, the primary variable of concern is rainfall. That's why it is beneficial to continuously track your stocking rate per acre per unit of rainfall.
As Bart Davidson of MaiaGrazing will say, “This really just means the rolling ratio of dry matter consumed per inch of precipitation that grew it”.
Recognising drought conditions early is relatively easy but changing your management early, and by how much, is a little more difficult. The key to making the most of drought conditions is to react quickly and in an informed way, because the sooner you reduce stock numbers, the smaller the change need be. The longer you wait, however, the greater the change needs to be, and then it’s likely you’ll also be selling in a falling market.
Or if you start feeding, it will almost definitely be at a higher price than if bought early.
Another issue to consider is the protection of the soil surface during drought periods. The target residual biomass cover on the soil surface necessary for ecological health does not change because the land is in drought, so don’t count on the “take half/leave half” rule to take proper care of your land. If you notice that bare ground starts to increase with fewer than 800 kg/ha dry matter remaining after a graze, then that should be your target residual each year, regardless of total production.
In a good year the land may produce 2,500-3000kg/ha of forage per year and you can remove 1,200 kgs sustainably. In a drought year, if total production is only 1,400 kg’s. total, you can now only remove 600 kg’s before you start to affect soil health and the sustainability of your farm.
This is where tracking your stocking rate per 100mm of rainfall and planning your grazing in advance according to current conditions can help to take the guesswork out of managing stocking rates. Please don't take the numbers above as recommendations for your land, as every ecosystem is different.
Your target biomass residual is specific to your land and your production scenario. Establishing these targets takes observation and management.
A healthy landscape produces more, and for longer, than a degraded landscape. Ultimately, you're a grass farmer first and livestock producer second.
Moving Forward
We hope these 5 Steps have provided you with some first action steps to get systems in place that will help you make smart, forward-thinking decisions and finally get on the trajectory of success. These topics only skim the surface of everything involved in running a successful livestock grazing enterprise.
That being said, watch our free grazing management webinars for valuable information to help you improve your farm management strategy for your grazing operation.
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