Farmers need business literacy, not just budget understanding

Posted by Brendon Walsh on 28 September 2017

We hear a lot about how kids lack financial literacy these days. Many adults do too and unfortunately so do many farmers. When farmers own multimillion dollar businesses, a lack of financial literacy is not a great platform to move forward with!

Financial literacy is a start. If that is what is needed first then get on with it! Understanding your budget and cash flows throughout the year is one example. However, farmers need more than financial literacy - they need business literacy. What is that? It’s really understanding how a farm business works and how you can influence that to create desirable results. It’s knowing how you can positively deal with challenge to still create desirable results. This is where the real business happens. If a farmer doesn’t understand this, business results will be sporadic.

I say sporadic because lack of business literacy means management decisions may or may not lead to certain results. There is no solid link between those desired results and the actions being taken. Assumptions often link the actions and results, and for many years now farmer results haven’t really moved much in general. Look up how the productivity of sheep and beef businesses has soared ahead in recent decades, yet profitability hasn’t moved.

To keep it simple, let’s break business literacy down into two major areas - business ownership literacy and business operational literacy.

Business ownership literacy is very familiar to farmers. This includes debt and assets, ratios of these and acceptable levels for lending, interest rates and how changes affect viability, multiple farm ownership, succession - the list goes on. While important, the key for farmers is more in business operational literacy.

This means familiarity of the successful operation of the business, not just farm operations. Unfortunately, farm operations receive the most attention in the farming industry, likely due to ease of measurement and understanding. But the successful operation of the business is more about understanding how and why profit is generated, which actions drive, enhance or are not related to profit, carrying out those actions that generate profit within the parameters of the individual business, and then learning from that for future decisions.

Do you know what profit actually is? What about how it is measured and why? Are you aware of the profit equation that governs the generation (and non-generation) of profit? Which actions are aligned with the profit equation and which ones aren’t, and why? What causes a farmer to go ahead and do what it takes to deliver that profit under any of the conditions they may operate under? Successful and profitable sheep and beef farmers are aware of answers to these questions. If you don’t know the answers or are not clear on them, your results will likely follow the ups and downs of prime and store market prices - something completely beyond your control. Sound familiar?

Having business operational literacy allows clarity about how to navigate change and challenge. It allows confidence in decision making and in the future.  It reduces risk. It also allows a much greater chance of consistent and highly positive results. And that is huge in terms of being in a position of strength to move forward into a bright and positive future.

Most people agree that this is one of the biggest challenges for farmers in the sheep and beef industry - moving forward with strength and positivity. The great thing is anyone can be profitable and do very well if they choose to build their business operational literacy. Seek out ways to build it. Ask questions of your advisors to ensure they can add value by helping you to build your business operational literacy.

It is your business after all. Get aware yourself and get those on your team who will help you build your capabilities to deliver results.

If you are curious about how the GrowFARM® System helps sheep and beef farmers build business operational literacy and generate the profits they really want, contact me here.