Profit Check Article - Bush Telegraph 29 January 2007

To Profit and Prosper - Bush Telegraph 29 January 2007

Over the past 5-7 years the net wealth of many farmer businesses has doubled or even tripled. This has largely been due to increased land values, bought on by a low exchange rate and strong commodity prices.In addition, there has been a marked rise in the productivity levels achieved on farms. Lambing performance alone, has gone from a national average of 107% in 1994/95 to 123% in 2004/05 (reference Meat & Wool New Zealand statistics). A huge gain over a relatively short space of years.

How was this quantum lift in performance achieved?

Improved monitoring of livestock health and body condition are the prime reasons for the lift from what I have seen. Credit must also go to ram breeders and to the introduction of the highly fertile Finnish Landrace sheep.

Coincidentally, the lift in sheep and cattle performance seems to have started at the same time as the Monitor Farm Programmes. The programme focuses on monitoring various aspects of the farm business that we know influence farm performance and profitability.

This review and monitoring process appears to be a key.To continue to lift performance, both physical and financial, a more in-depth analysis of the business is now required. To assist, new performance indicators have been identified as our understanding of the key drivers to profitability have improved.

Fifteen years ago we had:

  • Lambing & calving %
  • Stocking rate (su/ha)
  • Sheep:cattle ratio
  • Wool kg/ssu
  • GFI/su
  • EFS/ha

Today the performance indicators we look at include:

  • Kg lamb weaned/ha
  • Kg meat & fibre/ha
  • Kg liveweight wintered
  • GFI/kgDM consumed
  • Reproductive index
  • EFS/kgDM consumed
  • EFS/kgM&F produced
  • Post weaning lamb and calf growth rate

These indicators are much better measures of farm performance and profitability.

Why do we need to analyse the business more intensively now?

The simple reason is that it is getting harder to make a sustainable profit.From 2002 to 2005, it was relatively easy to make a profit and sizeable cash surplus. Since then we have seen the average Return on Capital drop from 5-8% to 1-2%. What does this mean for the future of your business and what can be done to improve it?

Step 1: Review your 2006 Annual Accounts

Annual Accounts provide significantly more information to us, than just what our tax liability is for the year.

If you have reviewed your 2006 accounts, what did you learn and what changes are you implementing to improve your bottom line performance?If you’re yet to review your 2006 accounts, what is holding you up?

  • I’m not a numbers person and have never had our accounts explained to us?
  • That was last year so what’s the point?
  • We still haven’t got them back from the accountant?

We need to look back to see where we are coming from in order to move forward. In not reviewing your annual accounts, you are not alone. However, it does mean you are missing an opportunity to make the business more profitable.

Sheppard Agriculture can provide a complete management analysis of sheep and beef farm businesses, from the annual accounts. Known as ‘Profit Check’, we review your accounts and prepare reports outlining the physical production and financial performance being achieved by the farm business.

The computer database captures the complete physical data of the property and relates it back to the financial performance, thus showing the efficiency of production and profit generation for the farm. In addition, it highlights trends emerging in the business (e.g. rising animal health costs) and compares performance against the average and top 10% of farmers in the region.

The information generated through Profit Check is then summarised in a Consultants report, identifying areas of management the farmer should focus on, for improved financial return.

As farmers and as an industry, we need to do better than we are. To do so, may be easier than you think. Use Profit Check to achieve and maintain a higher level of profitability.

For further information click here to email Greg or phone him on (03) 544 8505

honeypot@spinningplanet.co.nz