Are you a head down, bum up type of farmer? You work pretty hard alongside your team and family members, reward yourself and the team for their hard work with a shared beer at the end of the working week, and then return on Monday to do it all again next week. You make decisions on the hop and continually go from one job to the next, dealing with stoppages or breakdowns to get the system up and running smoothly again.

Have you ever considered that things could be different, or even how that could look? You could change your business and management style to allow yourself more time to do things within your business that you enjoy and even more time away from your business to do the things that you want to do with the people you love.

And you already have the power to do this. The passion that drives you to be head down, bum up, within your business is within you. You are heavily invested so you are already most of the way there, but with a few small steps, you could be well on your way to keeping your head up for long enough so that you can see where your business is heading, establish a clear path to get there and start down the road to where you want to be.

Getting off the treadmill

In horticultural businesses, especially, it is very difficult to get off the treadmill and think about changing the way you have farmed for many years, especially for the heads-down, bum-up type of business owners, where there is little downtime between crops and even less time to reflect on your efforts and achievements.  Changing ingrained habits requires a good reason and a clear pathway for that change. Importantly, you need to be willing to take the first steps.

If I asked you, “What is good business management?”, what would that look like? We know from years of benchmarking many businesses where the financial ratios should be sitting, but what of the on-ground, day-to-day traits or characteristics of good business managers? What is the benchmark cohort’s most profitable group doing that makes their business more profitable?

Below are some characteristics of good farm business management. I have taken these from various sources, including benchmarking and agribusiness management studies for different commodities in different parts of the world. The striking thing is that your industry and your issues are not unique; there are commonalities across the globe regarding better agricultural business management. Here are my top 6 good management characteristics;

1. Know your numbers and monitor these – identify the profit drivers and spend time and energy to optimise these.
2. Control the controllables – direct energy into controlling elements of the business that can be controlled, such as managing input costs, timing of spray applications, and ensuring a productive team.
3. Attention to detail – the cumulative effect of small improvements. Small gains across multiple areas, such as crop management, soil health, and equipment maintenance, rather than relying on a single standout factor.
4. Benchmarking and data use – using benchmark data and comparing your business performance against others and the previous season’s performance of your own business assists with setting internal targets and identifying inefficiencies and areas to focus on.
5. Adapting to change – the most detrimental thing to your business is to accept that it has always been done this way, so it must remain so.
6. Continuous learning through an expansive network – look outside your business and your industry, and form alliances.

The above is probably no surprise to you. Just as with our own personal health and wellbeing, we all know what we should be doing, but what it comes down to is how to bring about practice change. How do we translate these management characteristics into day-to-day activities that are real enough for farm owners to adopt and simple enough for it to become part of everyday culture within the team?

Let’s break it down

 1.Know your numbers and monitor these.

• This is about knowing your business position. The strength of your business position is a good indicator of how resilient your business is – that is, the ability to withstand market or environmental shocks.
• Key ratios such as operating efficiency, equity position, debt-to-income, and return on capital help measure business strength. Knowing how profitable you are, which areas of your business contribute significantly to that, and what factors influence profit are equally important. If you want to drill further into the numbers, look at your cost of production, machinery replacement %, gross margin for each crop/enterprise, and labour $/kg produced.
• Having a firm idea of your financial position and where costs are sitting allows you to make informed and timely decisions about the future direction of your business. This guides your strategic direction in terms of indicating whether you are in a position to scale up, what level of investment is required, how much you can access, and how much risk the business can withstand.
• They are not tricky numbers to extract, but are dependent on sound records, so good record keeping is an essential first step.
• If you don’t want to devise your business ratios yourself, a consultant can produce them for you.
• First steps – collate data and calculate your total farm income for a given year, total farm expenses and operating efficiency. This is the first indicator as to how your business is tracking. Take it one step further and calculate profit, your equity position (net worth) and your debt-to-income level for a basic business health check.

2. Control the controllables

• Once you know your numbers, you can focus on improving management of input costs, monitoring and increasing saleable yield, increasing productivity of the team, and planning a machinery replacement schedule.
• Identify the profit drivers in your business and allocate resources to aspects of your business that you know will directly impact income and profitability. Do some sensitivity analysis around how small increases to saleable yield can impact your income and profitability.
• Control costs by focusing on the 3 most significant cost items and identifying areas where you could make small gains in efficiency and implement good cost control.
• Address management’s time, are you paying them to do tasks that a farm hand could do, or are you paying them to manage? Keep time/task records to review time.
• Assess your training and processes and identify areas where this could be more effective and streamlined. Are staff receiving clear and concise instructions, and is communication within the team effective?
• Address any WH&S concerns and fix the problems.
• If you need support with staff processes and HR advice, seek assistance from an HR company.
• First steps – identify your three largest cost lines and dig deep into where there may be room for efficiency gains, write it down and place it somewhere visual so you will see it every day (the office wall, the toilet, whatever it takes!). Take it one step further to identify one operation to fine-tune to increase your saleable yield.

3. Attention to detail

• The cumulative effect of small changes can have a big impact on your bottom line. Small tasks should be considered to improve in order to make daily operations more effective.
• Understanding the productivity and value that machines, people, and activities add to your bottom line (or costing) can have a cumulative effect on timely and positive decision-making and improve your long-term profitability.
• Make small changes incrementally and allow time for these changes to become habit before introducing more changes.  Staff will be less overwhelmed and more likely to continue the introduced changes in everyday work.
• Timing of applications is a standout trait of more profitable farm businesses. Getting a bug spray on in the right conditions and at the optimal time can reduce the number of sprays per crop – a small change – but do this across 10 areas of your business over a year, and you will see a significant lift in productivity.
• Introduce an equipment maintenance schedule and address repairs and maintenance before they become a breakdown situation.  A small shift in practice can lower stress rates and reduce machinery downtime during busy periods.
• First steps – write down your seasonal operations for 12 months and map out when key activities need to occur and allocate who is responsible to ensure it is done. Take it one step further to categorise into work areas, labour/HR, farm improvements, machinery maintenance, crop cycles, and business planning.

4. Benchmarking and data use

• Measuring how you level up against other businesses in your industry is a useful diagnostic tool for business performance and helps with realistic goal setting in your business planning.
• Internal benchmarking and measuring your business performance year upon year provides an elevated view of whether the business is on track or off track with strategic targets.
• Timely and useful data supports measuring targets and strategic oversight as well as regular check-ins for management to assess budget to actuals, cost blow-outs or income levels that haven’t been reached. This allows timely and more effective decision-making and enables a degree of accountability within the business.
• First steps – if you have determined your business position and some key performance ratios outlined in Step 1, compare how your business sits relative to others in your sector using industry benchmark reports. Take it further by comparing your own business against its historical performance.

5. Adapting to change

• Change is inevitable. Those businesses that are more adaptable to change are generally more profitable over time.
• Keeping an open mind and accepting change can be a real challenge, especially with multiple generations all actively involved in the farming business, but to survive in business today, we need faster response times and need to be flexible enough to move with the times.
• The major decision-makers in a business must be willing to adapt to change and adopt innovation and technology in a timely manner. You don’t need to be the first to jump in, but definitely not at the back end of the pack.
• It is equally as important that change is well communicated with those in your team so that they are brought along for the journey and less likely to resist changes being introduced.
• Change within a business is much easier said than done. Consider using an external moderator in strategic discussions, such as a consultant or an independent board member and involve your bank and accountant in strategic discussions so that they are well informed and agreeable.
• First steps – review your last 90 days of operations and identify one process in your business that requires improvement. Discuss with your team members what changes should be made and document what is needed to bring about the change. Take it further by putting a timeline on the change being brought in and who is responsible for making it happen.

6. Continuous learning and improvement through an expansive network

• This may seem a bit fluffy, but benchmarking studies have shown that those who have a more extensive network within their industry and outside sectors generally run more profitable businesses.
• Continual learning encompasses most of the steps above, in that the business owner will strive for continual business improvement, always be seeking ways or means to do things better and inform themselves with data and outside advice.
• Approach those who surround your business as business partners and form alliances rather than keeping them at arm’s length. Your bank, accountant, buyers, and machinery dealers are all important people in your network who should be kept well informed and have a deep understanding of your business so that when things get tough, they will act as allies and be better positioned to assist your business.
• Allow your vulnerabilities to be seen. This means having open and frank discussions about your business with outsiders rather than being defensive or shutting down difficult conversations. The more willing you appear to others, the more willing they will be to assist.
• Be open-minded. Embrace knowledge, new ideas, and different perspectives.
• Develop a network outside of farming, an outside influence that has a positive effect on your lifestyle as well as your business.
• First steps – set time aside to attend a field day or training that focuses on an area of your business that you have identified as requiring reviewing and improving. Take it further by having some targeted conversations with people outside your business around the issue.

Are you running a business, or is it a job?

I recently listened to a Podcast on farm management, Agricoach Episode #44 with John Moor. Moor challenged listeners to look at their farm management style and consider whether they are head down, bum up all the time, or take time to assess their business and allow room for strategic planning and goal setting.  The latter, Moor explained, were approaching their farming business from a management perspective; they were running their business like a business. The former, head down, bum up style of farmers, he described as having a farming job. They might be business owners, but they were approaching it like a job, not running a business.

Where does your management style sit? And how can you shift the needle from having a farm job to running your farm like a business?

Steps to Business Improvement

Here is a recap of the useful first steps to get you started on the path to more positive farm business management:

Step 1 – Collate data and calculate your total farm income, expenses, and operating efficiency. This is the first indicator as to how your business is tracking. Take it one step further and calculate profit, your equity position (net worth) and your debt-to-income level for a basic business health check.

Step 2 – identify your three largest cost lines and dig deep into where there may be room for efficiency gains, write it down and place it somewhere visual so you will see it every day (the office wall, in the toilet, whatever it takes!). Take it one step further to identify one operation to fine-tune to increase your saleable yield.

Step 3 – Write down your seasonal operations for 12 months, map out when key activities need to occur, and allocate who is responsible for ensuring it is done. Take it one step further to categorise into work areas, labour/HR, farm improvements, machinery maintenance, crop cycles, and business planning.

Step 4 – If you have determined your business position and some key performance ratios outlined in Step 1, compare how your business sits relative to others in your sector using industry benchmark reports.  Take it further by comparing your own business against its historical performance.

Step 5 – Review your last 90 days of operations and identify one process in your business that requires improvement. Discuss with your team members what changes should be made and document what is needed to implement the change. Take it further by putting a timeline on the change being brought in and who is responsible for making it happen.

Step 6 – Set time aside to attend a field day or training workshop that focuses on an area of your business that you have identified as requiring review and improvement. Take it further by having targeted conversations with people outside your business about the issue.

Ultimately, it’s about mindset

When it all boils down, the key to improving your business performance is mindset. Change is hard, and habits are inherently difficult to change, both within yourself and the team. What is outlined here is what farm managers could and should be doing to improve their business. Just as with your personal health and well-being, we all know what we should be doing better. Having the mindset to want to change, to break bad habits, and form new good habits, and the will to actually do it and see it through, is what sets the better-performing businesses apart.

‘Success is a few simple disciplines, practised every day; while failure is simply a few errors in judgment, repeated every day.’  ~ Management coach Jim Rohn (jimrohn.com)

Further Information and Resources

Planfarm Academy “The Business of Farming” and “The Business of Horticulture”, online training for vision and goal setting, calculating ratios, profit, balance sheet and gross margins.

Podcasts – AgriCoach, Farm Owners Academy, numerous HR podcasts

Planning tools – House Paddock Consulting 90-day planner

Human Resources/WH&S – Industry-specific training, websites, and HR firms provide tools and resources to improve HR processes, try Happy HR (WA) and Focus HR (QLD).

Planfarm consultants – farm management consulting, cashflow budgeting and gross margin analysis, farm business roadmap, and independent board members. If we do not have expertise in a specific area, we will refer you to where you can find assistance and support.

www.planfarm.com.au