As the days begin to shorten and the migratory birds start planning their trip north you need to think about planning your farm business budget for the next financial year. A fundamental shift in farm budget planning is to begin with the end in mind.
Traditionally, we look at the number of livestock that we plan to run and the hectares of crops that we will sow/plant & harvest/pick then allocate expenses. A subtle change in thinking is to ask the question is ‘How much profit do we want to make?’, then re-design the stock/crop flows and overheads to meet the profit target.
For an example: A profit target of keeping $0.20 in every dollar before tax and capital costs would look like this: The challenge now is to: Design the physical plan to meet your profit target Look at strategies to increase turnover Increase gross margins and reduce overheads. If it turns out that a profit of $0.20 is unrealistic then look at keeping $0.10 in every dollar of turnover. If it isn’t possible to make a profit of $0.10 in every dollar of turnover in an average year then that business might be at risk.
For summary: Begin with the end in mind Set the profit target Re-design the physical plan to meet the profit
Written by Richard Groom, Director and workshop Facilitator at PrincipleFocus (NSW)