Some clients are younger and less experienced, others have been in the business for decades, but regardless of size or experience, many top producers have a few things in common. They extract the expertise and skills of those around them and work hard to document their progress and financial information.

 

Financial Reporting

Typically year-end is the time we think about tidying up the things we haven’t got round to, preparing accounts and budgeting for the coming year. But why are we not looking at our financial reporting as an ongoing process? Think of it as a fluid tool to help guide decision making and adjust course when confronted with something unexpected. This would bring fewer surprises come year-end and give the tools for producers to challenge inputs and relationships at any time and steer operational success sooner, rather than later.

Many successful producers don’t consider financial reporting an annual task. They constantly monitor their numbers and use the data to pressure test and re-route their plan accordingly. To be in good standing with your lender, accurate financial statements and projections are a must, but top producers see it as more than just something they need to have to appease their lender, they use it as a tool to help them assess and reach their business goals.

 

Projections and Cost of Production

A projection is one of the best decision making tools available to you. It outlines expected performance as well as cash income and expense for a certain period of time, and helps you determine peak overdraft needs as well as understand your cash needs. Successful producers have a projection and understand what their cost of production is.

If you’re not 100% certain of your breakeven point, work it out! It’s a simple matter of understanding the price necessary to cover all operational costs and inputs. Calculating your cost of production starts with looking at annual production, then look at all expenses, fixed and variable, as well as non-cash expenses. Remember, your projection — and therefore cost of production — is unique to you and your operation. Nobody else’s is the same. When you’re putting together a projection it’s time to be realistic, not overly optimistic. Whether its tons per acre, litres of milk produced, or mortality, it’s vital to be accurate with expenses.

From simple spread sheets, to sophisticated software, there are different farm management tools that meet the needs of different operations and operators. Choose the method that you are comfortable with and create a system you can stick with. Consistency and diligent attention to inputs and margins are the key factors in positioning yourself for success during compressed prices. Adopting a tool you can manage and that you will use can help make the difference between operational survival and success.

Having had the fortune of being involved with the development of groups from inception, and witnessing the behaviour of established small & large groups with different models. I have put together some thoughts on the whole process, but start off with what does benchmarking mean.

 

What is benchmarking by definition?

The objective of benchmarking is to understand and evaluate the current position of a business or organisation in relation to best practice and to identify areas and means of performance improvement.

The search for best practice can exist inside a particular industry and also lessons learnt in other industries.

 

The Benchmarking Process

Benchmarking involves looking outward to examine how others achieve their performance levels, and to understand the processes they use.

In this way, benchmarking helps explain the processes behind excellent performance. When lessons learned from a benchmarking exercise are applied appropriately, they facilitate improved performance in critical functions within an organisation or in key areas of the business.

The application of benchmarking involves four key steps:

1. Understand in detail your own existing business processes
2. Analyse the business processes of others
3. Compare own business performance with that of others
4. Implement the steps necessary to close the performance gapBenchmarking should not be considered a one-off exercise. To be effective, it must become an integral part of an ongoing improvement process, the goal being to be abreast of ever-improving best practice.

 

The Pro’s & Con’s

• Value – In large groups, value gets lost by dilution. Do you look at a benchmark and then start making judgements on the data that has made up that benchmark? That benchmark can give a good rough guide to the masses, but has only provided you with a meaningless spread. It hasn’t allowed you to identify a process that leads to excellent performance.
• Comparison – countless times I get asked ‘what is the cost of production on ‘xx’ system’, or ‘what is the lowest break-even you have seen’. It is understandable that human nature is curious, but if you can’t accurately relate that back to your own business and structure what are you learning from it?
• Accuracy – In any group situation you need to be confident that the output is 100% accurate. That the person carrying out the process has a skill level which incorporates both an understanding of the subject matter and the academic ability.
• Breaking it down – each element of the business should be looked at as a benchmarking process in its own right, achieving a level of detail and data analysis that you don’t have time to achieve without the motivation of a group situation. This is where carried out correctly, huge lessons are learnt.
• Consistency – In larger groups you will get more than one person involved in the process, this brings in the element of interpretation, or more importantly, misinterpretation, and this cannot be under estimated, especially when considering multi-enterprise producers.
• Confidentiality – Is extremely important, integrity is key to longevity.
• Membership – It is worth considering who to invite into a group with you, as with everything in life, not always the more vocal are more able.
• Frequency – Larger groups are usually based on an annual situation, small groups provide a discipline that ensures trading analysis is being carried out throughout the year. This gives the tools for producers to challenge inputs and relationships at any time and steer operational success sooner, rather than later.
• Focus – Is on business and financial management and the resultant drivers. This often pushes producers outside of their comfort zone, which therefore by default provides them with exposure to knowledge which increases their own level of understanding.
• Competition – even with differing characters, competition plays a large part in driving success between group members.
• Group size – has resonated through all of the above points. Number two of the points detailed in the benchmarking process, was being able to know the businesses you are comparing with, well. Meeting regularly and in small numbers fits that criteria.

 

As a parting comment, it is hard to explain to someone who isn’t part of a small successful group, the full benefits achieved. It isn’t just one thing you can put your finger, it’s sweating the small stuff, doing little things incrementally better. Often it is as simple as actually taking action, challenging yourself, rather than just talking about it!