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.

With volatility the name of the game, and the memory still vivid in the mind, it is worth looking back at what was a success for you, and how you can be prepared for the next roller coaster which is inevitably ahead.

There is no magic formula to deal with volatile prices, however, successful dairy producers incorporate many of the items listed, in the good and bad times, maximising returns when opportunities arise, and managing risk when needed. Controlling what is in their power to affect.

  1. Planning – prepare a monthly cash flow budget and compare actuals to budget. The budget should be dynamic; meaning when factors change the budget should be updated to reflect the change. Know your cash flow break-even.
  2. Based on the budget, set milk price targets. The availability of this opportunity of risk management to some suppliers in the UK is rapidly developing, do you know everything you need to know to take advantage of this?
  3. Use budgeted feed costs to drive marketing decisions. Are feeds priced at levels that meet budget and if so is there a plan in place to lock in prices?
  4. Maintain good levels of working capital – ideally minimum of £300/cow. Does your financial structure allow you to take advantage of buying opportunities? Is there adequate cash or do you have the availability of a flexi-loan product?
  5. Strive to harvest and maintain excellent quality forages, which will reduce the dependence on purchased energy and protein. Do you know your feed losses? Is the ration on paper what is actually being fed to the cows?
  6. Produce milk which maximizes YOUR contract.
  7. Maximize non milk income by culling cows in good condition and rearing only enough calves for replacement.
  8. Proactively manage the health of cows. Keep treatments and vaccinations up to date and make sure protocols are in place to deal with sick cows. Make sure dry cow and fresh cow programs are in place to maximize the health of the cow.

Often when you watch the numbers continuously like I do, it isn’t just one thing you can put your finger on in a business which is successful, 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 doing it!

In agricultural businesses there’s no one size fits all model, you have to take the situation, fit it to your skill base, and then develop a successful business model. Being successful in business is an accumulation of information, experiences, and putting together the best model which is applicable to you. It also means knowing your strengths and weaknesses and finding the people who make up these gaps that you can work with.

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!

The role of the modern CFO is rapidly changing, due to the adoption of digital automation, data and analytics. They are spending less time each year on the historical CFO concerns of annual budgets, compliance and administration to become crucial players in board level decision making. However, according to a recent survey of CFO’s and finance professionals by consultants Kaufman Hall, there is still quite a way to go this year:

  • 90% say they need to do more with financial and operations data
  • Reporting and analysis functions must be improved to access data
  • More than 70% say supporting decision-making is their No.1 goal
  • Less than 10% say they are “very satisfied” with performance management reporting
  • Less than 23% are very confident about their company’s ability to navigate unforeseen obstacles, due in part to outdated financial planning and analysis tools and processes
  • More than 50% say they take over 3 months to complete the annual budget
  • Only 38% use rolling forecasts
  • 90% still rely on Excel in financial planning and budgeting

A Forbes magazine CFO interview at the end of 2016 backed up much of the above survey results. It predicted that as businesses become ever more digital, real-time analytics are the way forward.

Data and analytics are considered to be a more viable guide than the budget, and as such dynamic planning and simulation will come more to the fore. Preparing for unexpected political or economic changes to the market requires predictive algorithms and tools, not just an Excel spreadsheet, so a tech-minded CFO will be crucial. Technology will at the same time minimize the amount of CFO time spent on historically time-consuming transactional tasks and information gathering, enabling the 2017 CFO to concentrate more on strategic real-time advice.

This article written by the consultancy group has the Hazelbite ethos all over it, if your finance team needs an injection of modern thinking with some new skill sets on board, then do not hesitate to contact me.