Kohl’s notes
This is a question that I hear on a regular basis, from farmers and ranchers across North America. In my view, a successful farm business strategy starts with three key issues.
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Know your cost of production. |
Whatever farm sector you’re in or aspire to be in, your success will be greatly influenced by your efficiency of production.How much does it cost you to grow or produce a dollar’s worth of wheat, corn, canola, beef, pork or milk? Once you know this, compare your benchmark figures to the low-medium-high benchmarks that are relevant to your farm sector. If you are not a top performer, your first strategic priority is to become one.
Another concept that more progressive producers are using is variance analysis. That is, comparing your budgets and past performance to actual results. Any deviations are then analyzed to determine if it was factors in or out of the control of management that resulted in the differences. This practice tests your business against itself and allows you to think strategically in the execution of production.
Work on the efficiencies of getting better before getting bigger. If you tackle growth while you are not efficient, this can result in spiralling losses. If the efficiency coefficient is improved first, then growth can be incrementally profitable.
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Know your assets – capital and human. |
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| Dr. David Kohl developed RBC Royal Bank’s Online Ag Advisor calculator to allow producers to benchmark their results against industry standards. You’ll find it at www.rbcroyalbank.com/agriculture. |
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If your strategy involves expanding your farm revenue, how suitable are your capital assets and human assets for a growth strategy? Do you have the right land and water, the right facilities and equipment, and the right people to achieve your objectives? If these assets are insufficient for what you have in mind, your strategy must detail how to upgrade them.
Which capital assets are not fully utilized? Which strategies will you use to spread the fixed or overhead cost more efficiently? In some cases, sharing machinery and equipment within the family or neighbourhood is used to drive down cost.
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Know what you’re best at. |
Some people like production more than marketing, or managing people more than finances. To be successful, a farm strategy must reflect the individual talents and desires of the owner. Of course, the strategy should also outline how you plan to get help in areas where you need it.
Next, conduct a human resource audit. Who needs to stay or go? If you bring a son or daughter into the business, does he or she have talents that complement the business or are they a chip off the old block?
By exploring these three areas first, you’re more likely to create a farm strategy that delivers what you want.
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