Running a successful farm business is a balancing act between risk and reward.
There is a definite life cycle which plots out the path for many professions and those running businesses. The life cycle is as follows:
5-25 years: you get an education.
25-35 years: you gain experience.
35-55 years: you achieve success (or not).
55-65 years: you live on your reputation or coast along
65+ years: you go backwards.
Farmers running farm businesses fit into this lifecycle of events.
Most farm families have children in their 30s, therefore when they reach the contributory old age pension age of 66 years, their successors are approaching 35 years of age.
This is often the best period for progressive development in the farm business cycle. The combination of experienced, waning-in-ambition parents, with well-educated young Turks, full of ambition and ideas is a great mix for a business if managed properly.
A clear focus and farm business plan for the farm business, driven on by the energy of youth and the experience of parents who have been there and done that, is a fast track to a successful business.
The focus and road map of the business plan is important, but an experienced consultant/advisor as part of the team is vital to diffuse the inevitable differences of opinion and challenges that occur from time to time.
Many businesses fail to function properly at these times due to an over dominant parent or an uber-ambitious son/daughter successor. An experienced consultant/advisor can take heat out of the situation, refocus on the farm business plan and ultimately steady and steer the ship back on course.
There is great satisfaction for all team members when the farm business successfully executes a plan, key physical performance indices are met and net profit and surplus cash increases. Then it's time to set new targets and go onwards and upwards again.
Of course, there are many farm businesses which do not follow the successful path. In my experience, there are three types of poor farm businesses models:
Firstly, there are the stubborn, dominant parents who do not relinquish control of the farm business until it is too late.
Successors in these businesses are deeply unhappy, they often feel trapped and disillusioned. In many cases there are no successors, or the successors leave and let the parents run the business into the ground. This type of farm business may not go out of business; however, they are on a slippery slope to ceasing on death of the owner.
When the farm transfers to the next generation in such cases, their attitude to farming has been irrevocably damaged and the farm is often leased out or sold.
Secondly, there are farm business owners who spend the farm overdraft as if it were a target rather than a limit!
Such farmers are driven by 'wants' rather than 'needs'. The lack of focus on a clear farm business plan is symptomatic of these type of farm businesses. The spend-a-mania usually catches up with the business in the finish and a bail out in the form of a sale of assets is often required.
Thirdly, there are the farmer business owners who are constantly changing their enterprise or system of production. Such farmers are too easily influenced by new systems, products or fads. Again, there is no clear farm business plan, or worse again, the agreed plan has been abandoned on whim.
Changing farm enterprises or farm systems of production cost money and really should only be done once or twice in a lifetime.
In my experience, 'sticking to the knitting' through good times and bad are those who succeed in the long run. It is not difficult to identify the key drivers of success in a farm business.
When the key drivers are identified, it only a matter of figuring out how to do these better and focus solely on this task.
Very often, farmers worry about issues outside of their control like weather and prices. This is a complete waste of time and energy. Having contingency plans for such events is a much better use of time and energy.
Last year's drought was a prime example, if the farm business was short of forage, the solution in most cases was to calculate how much you needed to fill the deficit and simply go out and buy it in the form of forage or concentrate.
If you did not have the cash available, go and organise the finance. Worrying, waiting and hoping is never going to solve a fodder deficit or give peace of mind. In fact, the really smart farmers are building fodder stocks at present as fodder prices have reverted to normal levels.
In summary, the key to running a successful farm business is identifying the key drivers of success in the business, make a clear business plan to maximise the gain from these drivers. Beware of the temptation of 'wants over needs'.
Mike Brady is managing director at Brady Group agricultural consultants & land agents; email: email@example.com