FARMERS should be heading for excellence rather than perfection in their business, and never forget that production is vanity and profit is sanity. These were just two of the key messages from New Zealand farm-business accountant and consultant Pita Alexander, a speaker at DairySA's annual conference at Mount Gambier in mid June.
In Mr Alexander's presentation 'Profits need you, losses manage themselves: learning how to succeed in tough times', he said that excellence in business was 80%, which was often the pont of optimum net profit.
"For many farming couples in the bottom two quartiles, when things go wrong they turn the light off," he said. "Turning the light off when things go wrong is no way to run the business.
"One of the most important things when you are going through a low patch is to minimise the losses. When you are part of a farming enterprise making annoying losses, I'm for you taking over control of the losses."
Mr Alexander said farms were a good example of a "bottomless pit" for money. When farms reached about 93% of production capacity, they were "mature".
"At that point you need to think, 'hey, stop pouring money into the pit'," he said. "Reduce your debt, buy another farm, or buy another investment <\#150> don't keep just pouring money into it."
He said it was also important to maximise "free cash". "Free cash needs to be treated like gold because it's got your blood on it," he said.
"At home, we've had the some volatility with profits that you've had here. We treat profits like gold and we call it free cash."
Mr Alexander was also keen to get the idea across that profit was a decision. The top quartiles in business made a decision at the beginning of the year that they would make a profit "come hell or high water." "Sometimes prices and costs muck them up, but they have got this plan in place that they're going to make a profit," he said.
"The bottom group are invariably waiting to see if there's any money left. It's just a characteristic of that bottom quartile <\#150> make sure you're not in it."
It was important that farmers did not hang their hat on one good year or bad year. Rather, they should be thinking in a three, five or seven-year timeframe.
"One poor year or good year isn't going to mean a lot, except that when you have had a good year make use of the cash because it's so easy not to," he said.
And with volatility becoming more common, success would be measured on "how well you bounce". "We are going to have this volatility <\#150> it's a part of the process," he said.
He found the bottom two quartiles of farming couples did not measure or monitor their farming position because it was unexciting <\#150> it did not work or it did not look good.
However, the top two quartiles applied stringent management, knew their cost of production and knew where they were going with their business.