Unfortunately the magic number is going to take a hammering for many farmers this year. What is the magic number you may be asking? If you only wanted to measure 1 number (outside of revenue, profit and cash) what would it be? What would be a number that provides a snapshot of farm performance. A number that can be reviewed annually, but more importantly averaged across 3 – 5 years to assess performance. We think the magic number is gross revenue per hectare and it’s a number we look at to see how a farmer is travelling. It’s easy to calculate, benchmark and compare. Here’s how to work it out:
Gross Return per Hectare = Gross Farm Income / Hectares Farmed
It won’t tell you everything but it’s a good start to see how you are performing. It can also be calculated per enterprise in your farm business.
For example the 5 year average benchmark in your district is $980 per hectare. You are currently at $810 per hectare. Where can improvements be made? For example a greater investment in fertilizer and pasture improvements, better land use, clearing paddocks, being better organized and completing work on time. There is normally a number of things to work on to improve performance. Using a sports analogy, its all about the 1% ers!
As we mentioned above, your magic number may take a hammering this year. But it is so important to look at this number over a 3 to 5 year average to assess your real performance. As we all know farming is a long term game.
Available working capital will be under pressure for next season and costs will need to be cut. But it is so important to understand costs and not cut back on the costs that are really an investment in your farm and future earning capacity. A good example is fertilizer. This is a big cost item on most P & L’s. Therefore you might be tempted to cut back to save some money. Your soil will be starving of nutrients after producing 2 big crops and needs to be replenished to give the best chance of success next year.
It’s all about having a plan, communicating the plan with financial information and evidence, and working with your agri bank and agronomist to implement the plan with additional funding and expert agronomic advice.
Xero and Figured make this so easy by clarifying the financial analysis and decision making. We can then collaborate with your banker to keep them informed and show you are on the front foot dealing with the challenge ahead and investing for the future.
This is possibly difficult to comprehend at the moment given the disappointment of what’s happened. But it’s so important to understand the help and support that is available to help you through these tough times.
Rachael Trickey is a Partner and Agribusiness Consultant at Mulcahy & Co Agri Solutions and can be contacted on 0401 645 968 or email@example.com
Bronte Gorringe is an Agribusiness Consultant at Mulcahy & Co Agri Solutions and can be contacted on 0401 882 374 or firstname.lastname@example.org