Businesses are in one of three states of momentum:
- Gaining,
- Neutral, or
- Losing.
(Or your classic Sigmoid Curve where success increases, plateaus and then declines – without making changes).
Obviously, you want to be in the first – ‘gaining momentum’ – phase, as this gets you ahead and being better than the next guy, or at worst, be in neutral. Losing momentum starts a decline that is hard to turn around.
The key measure is financial momentum but driving that are several farm components – feed grown, animal growth rates, farm productivity and so on.
How do you know where you are at or how you compare to others?
Benchmarking against other farm businesses can be a useful guide to your performance and to find out where gaps are if you are looking to make improvements.
It’s difficult to get a direct comparison using benchmarks from a group of other farms, each farm is slightly different, but it can be useful to get a feel of where you are at.
Benchmarking can also show the spread of performance within a group, and the range is normally larger than you might think.
Another useful comparison is to your own past performance. Banks can provide an analysis of your accounts going back over the last few years and you can start to see trends. This is useful information and is prepared for you for free.
Why is improving farm performance so important?
Improving performance is important because farm costs continue to rise – albeit at faster and slower rates – but they are inevitably always increasing. So, to maintain the gap between income and expenses, which is what gets left in your pocket, we need to continually increase productivity at a sensible cost structure and therefore profitability – a continuation of gaining momentum.
The last couple of years have tested the resilience of some businesses – especially businesses that had been losing momentum. We started looking for ‘where are the gaps’ and how to make up some those gaps.
Now that prices have improved, maybe the immediate ‘need’ to look for those gaps, and address them, have eased. But that financial pressure will return someday, and the message is to keep looking for that improvement, make those changes and get your business in a better space for when prices are not as good.
Now that there might be some cash to work with, what changes are you going to make on your farm and get some momentum going?
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