This quote by Steven Covey is a great way to start anything – whether it is something short-term like a weekend fishing trip or a long-haul journey around Australia. But it is especially empowering for your farm business journey .
What is your goal, or the ‘end’ that you hope to achieve? Even for a short-term goal like the weekend fishing trip, the ‘end’ may be very different for different people. Is it really about catching fish, or is it more a chance to get away and relax? Maybe it is a bit of both. Whatever the goal, and whether this is stated or not, this will shape the decisions you make in preparation for your ‘journey’, the choices you make along the way, and how you feel about the final outcome.
Effective farm business management is no different, and having decision-support tools you can trust, will help you to answer critical questions along your farm business journey:
1. Where do you want to go?
As with the fishing trip, your answer to this question about your medium and long-term goals provides a ‘compass’ that will guide all your future choices and decisions. There might be road-blocks and detours ahead such as drought but having clearly set goals will provide strong motivation to get back on track.
Before you can plan your journey to reach your ultimate destination, you need to know what resources you currently have. Three essential measures for farm business management are Liquidity, Efficiency and Wealth:
Liquidity – What cash reserves do you currently have available to pay bills as they occur? That is, how much fuel is currently left in your tank? In your farm business management, this is assessed with a Cash Flow report. Efficiency – How well has your farm business used its resources? For the value invested in your business, has it been providing a good return? To continue the vehicle analogy, how good is your fuel efficiency? In a farm business, efficiency is measured by Enterprise Gross Margins and a Return on Managed Assets assessment. Wealth – After costs, are you left with enough profit to build wealth? Are you improving business assets over time? In other words, how much of the vehicle is yours rather than the bank’s? A Balance Sheet will give a clear check of your net worth and how much equity you have in the business.
You know where you ultimately want to get and the direction you have to travel to get there, but there are a huge number of decisions ahead of you. What road should you take? Which is faster, or safer? Is your business ‘vehicle’ up to the demands of your farm business journey? Do you need extra resources such as land or labour units?
Most people living in Australia will at some stage in their life have done a long road trip, and the distances and sparseness of the country can be pretty challenging if you are not adequately prepared. One trip I clearly remember making from outback NSW down to Adelaide in South Australia started at four in the morning to get to Cobar for breakfast. Wake-up shots of coffee got us chatting so much over breakfast that we got back into the car without remembering to refuel. Half an hour down the track, huge consternation when we suddenly remembered! Did we have enough fuel to get to the next reliable stop which was still over two hours away? Back we went to Cobar, adding another hour to an already exhausting journey.
How well prepared are you for each stage of your journey and are you keeping your eye on the dials? And even though it is inevitable that there is some business back-tracking through tough periods, overall are you getting closer to your end goal?
Your farm business journey will be so much easier and clearer if you have a reliable navigation system to help you make both mid and long-term decisions. Scenario Analysis is the most powerful and reliable decision-support tool available to a farm business and acts like a GPS for your business decisions. It allows you to input different variables to inform any farm business management scenario, which you can then compare for optimal outcomes:
• What enterprise mix will give me the best financial outcome next year?
• What enterprise mix will perform best if a drought occurs?
• Is the farm business generating enough wealth to build toward retirement or business transition?
• Should I buy more land, or will leasing land provide greater profitability? Etc.
NB This example in the FUTURE level of P2PAgri is comparing three scenarios: A base scenario ‘Future’, buying new land, and buying new land as well as a header.
Once you have a range of scenarios, they can be compared for optimal outcomes and tested in terms of those three key farm business measures: Efficiency, Liquidity and Wealth.
These measures can be used to consistently plan, monitor and analyse your business performance each season. Like the dials on your vehicle dashboard, they provide essential feedback to guide any adjustments necessary along the way and inform your risk management.
That’s a pretty easy one if you are on a road trip with a destination in mind from the beginning of your journey! And if you have clearly set business and personal goals that are regularly revised, it should also be fairly obvious in your farm business journey as well.
Your Farm Business Management Journey made Easier
All the tools discussed in this article, both the essential farm business performance measures and the decision-support tool Scenario Analysis, could instead be done laboriously on spreadsheets. But why would you bother? That would be like trying to get from Cobar to Adelaide on a pushbike when you have a turbo-charged, fully road-tested and supported vehicle you can trust. Of course you can choose to ride your bike, but there is little doubt you would arrive a lot more exhausted and would you get there in time?
P2PAgri software puts you in the driver’s seat of your farm business journey. Why not enjoy the ride?
Mike Krause is one of Australia’s leading Farm Business Management consultants with significant experience in providing farm business management support, training and consulting to Australia’s agricultural and agri-business industries.
This experience forms the basis of significant developments:
‘Farming the Business’ manual Mike produced for the GRDC.
‘Plan to Profit’, the successful desktop software developed and sold by Mike over 12 years.
P2PAgri, our new online platform for farmers and advisers. Check it out on www.p2pagri.com.au.