Put the edge on your business

A two-day MLA Business EDGE workshop helped beef producers Steven and Cindy Scott to objectively assess their enterprise performance and improve efficiencies on-farm.

According to the Scotts, the workshop – presented by John Francis from Holmes Sackett – was a valuable tool to not only sharpen their business minds, but also broaden their outlook.

Taking emotions out of decision making

Cindy said that the biggest change made since completing the workshop is the rigour that she and Steven apply when making decisions about enterprise expenditure.

“The more financially literate you are, the more effective your decision making is likely to be.”

Steven agreed and said that it was necessary to take the emotion out of decision making.

“Emotion clouds objectivity, so to do a rigorous assessment of your business, you need to separate lifestyle factors from the business and also question ‘accepted wisdom’ associated with traditional farming practices.

“Ideally, you should only look at the numbers or engage a consultant who pushes you out of your comfort zone by challenging and questioning all aspects of your business,” Steven said.

As an example, the Scotts explained their recent experience of conducting a cost-benefit analysis to assess whether they should cut drought-affected crops for hay or take them through to harvest and maintain ground cover.

“We decided to let the crops run through to grain because the figures worked better,” Steven said.

“Decisions like these have an impact on profitability, so you need to make the time to think them through.”

Steven said that if you consider the value in farming operations and the large amount of money outlaid annually, the importance of generating the highest possible returns becomes clear.

“The costs in agriculture can blow out very quickly.

“Our benchmarking figures allow us to monitor the areas that affect our costs of production and then decide what changes are required.  You have to look at all options objectively,” Steven said.

Setting up for success

Cindy said that, as a result of attending Business EDGE, they also upgraded their accounting software and reporting systems to better equip them for analysis.

“The course emphasised the difference between tax compliance accounts and financial management accounts. The compliance accounts are used as an estimate of tax liability only, while the management accounts analyse existing information to tell you what’s going on in your business,” Cindy said.

Business EDGE workshops also look at the difference between profit and profitability as well as the relationship between profitability and growth. A spreadsheet tool is provided to help participants assess investment decisions.

Lessons learned

• Financial literacy improves decision making skills.
• Base business decisions on rigorous assessment of the figures, not on emotion.
• If you engage a financial consultant, ensure they push you out of your comfort zone by challenging and questioning all aspects of your business.

Find out where upcoming Business EDGE workshops are being held.