Purpose, plan and people

I am often asked what drives the performance or outcomes on a farm.   There are many factors – some external and some internal.

With the internal factors, performance  can be reduced to a formula.

Performance  = purpose + plan + people

The purpose provides the focus

The plan determines the direction of each decision

The people deliver the outcome

So the questions to ask are

  • What is the purpose of your business ?
  • What is the plan that will let you achieve your purpose ?
  • Are all the people in the business allon the one page  – or is there tension between the players?

Clarifying  the purpose, documenting the plan and ensuring that all the people are on the one page is the starting point to improved performance.

This process to clarify the purpose and plan for a business can often open up some interesting and profitable conversations.

What success looks like…

2013 The reality of life - success

The context in which we farm

Understanding the context in which we farm provides a sound base for making effective management decisions .

One context that has changed over time is the margin over costs, and the margin continues to decline.

Consider what has happened in the last thirty years  since the 1980’s.  And thirty years is less than one generation ago

In the 1980’s, costs on most farms were commonly 40 per cent of income,  leaving a margin over costs of 60 percent.

Currently, costs on most farms are approaching or exceeding 70 per cent,  leaving a margin over costs of 30 percent.

What you can do with a 30 percent margin over costs is quite different to what you can do with a 60 per cent margin over costs.

In a business, the margin over costs is very significant because it is the amount available from operations to service debt, for living and for investment.    A 30 percent margin is spread thinner, compared to a 60 percent margin.

Some factors to be considered when farming with a 30 percent margin over costs are

  • The scale of operations needs to increase in order to produce an adequate total margin.
  • Working capital requirements increase
  • Risk increases

Some questions to ask are ?

  • Are debt levels sustainable ?
  • Can the business meet the existing and proposed debt repayment schedules ?
  • Should some funds be kept in reserve, and if so how much ?
  • When the downturn comes, and it will, how will the business be funded?

The trend to declining  margins continues.  That is the context in which we farm.