Do I expand the farm business or do I increase my profit? Isn’t the answer obvious? Well, many farmers are still saying that getting bigger is the answer to their current woes – “if only I can increase production, I will be alright.”
This may have worked when capital gain was the order of the day and financiers were happy to fund expansion and increased costs through debt secured on an increase in market value. However, now that farm capital gain is history the buzzword around is that farmers must make profit! Hang on – wasn’t this always the case for any business, regardless of the state of global finances?! Business owners must make a profit to a) keep the business running, and b) provide a return for investment, risk and ownership.
A big issue for farmers is that they are generally not in the habit of operating to receive consistently good profits. Parallel to this, the belief often tends to be that more profit is created by more income, and more income is created by increasing production. Believing this exclusively almost always ends in tears - smart business owners know that increasing production sometimes works but it is not a straight one to one relationship. Profit is what is left over AFTER expenses. Income is what is taken in BEFORE expenses.
Let’s get down to it. The farm business (like any other) must generate a good profit every year. In fact it must operate to receive good profits in “bad” years and receive great profits in “good” years.
As discussed above many believe that to generate more profit when returns are low and/or there is little or no profit, they must get bigger. In other words “get more grass (DM) eaten and you will make more money.” In nearly all cases this does not address the core issue of why there is little or no profit in the first place. Usually the 6 profit principles are not being followed so DM is not getting converted to profit particularly well. Multiplying out a no or low profit system means you get no or low profit on a bigger scale! You will probably be working a lot harder for it too.
The best way to improve profit is to convert the DM to profit as well as possible first. Once you know how to be consistently profitable, you then have something very valuable to multiply out! You can take these principles and transplant them anywhere if you do still want to get bigger. Your chances of success will be greatly enhanced! Interestingly, once you become more profitable on the original scale you may not want to go bigger if your spare cash and lifestyle desires are now being met. Your Farm Business Profit = Profit / kg DMe X kg DMe. Here is an example:
Let’s say that currently your animals consume 2 million kg DM at 2.5c profit / kg DMe. This equals $50 000 profit.
If this is not enough, you could:
Either way it is your choice. What will you do?
Contact Brendon now to find out the next steps (see the contact details below).