MOST farmers who are owner/operators of their businesses usually take drawings instead of paying themselves wages.
In most cases, the total drawings are below what is deemed a satisfactory wage. This means that money is left in the business to be used to run or develop the farm.
On many occasions I have wondered how some family farm businesses would go if full wages were paid and the money was not allowed to be returned to the business.
One of the most common questions that I am asked is how much can you afford to pay a full-time manager. This will of course depend on the size and scale of the business, but I consider $600,000 of gross income is required to justify a full-time management labour unit.
I believe the cost of all labour should be capped at about 15 per cent of gross income, in other words where the $600,000 business has one person doing all the work then $90,000 or thereabouts is possibly the ceiling wage amount.
The fundamental question remains - are you working the farm or is the farm working you?
This is the total amount of the self-employment package. It will include the wage, provision of the house, superannuation and other perks. Often the extra benefits can constitute 30pc of the value of the total package.
The challenging thing for the one labour unit operation is that he or she does the full gamut of tasks on-farm. This could range from $20 an hour jobs right up to $200/hr.
My long-held belief is that owner/operators input on average about 2500 hours of their labour annually into their business. In simple terms, this is an average of 50 hours for 50 weeks, some weeks more, others less.
Again, working long and working hard should not be confused with working efficiently. If the $90,000 package is divided by the 2500 hours, that equates to $36/hr.
From my ongoing analysis, I have found it difficult to account for 30pc of the 2500 hours of work input each year on a lot of farms. Maybe this could explain why some farmers continue to farm for the lifestyle.
In my mind, profit equals lifestyle and taking liberties before the profit is made, usually means there is less of it.
Related reading: How farm benchmarking drives successful decision-making
Recording your time input against the tasks undertaken, particularly at less busy times, can be a good way of revealing where inefficiencies are within the business.
Anything beyond the 2500 hours of work a year, it is my guess that work-life balance starts to suffer.
Regardless of the business, work expands to fill the time, just like expenses rise to meet income. It is incredible how we can justify doing things if we want to.
The fundamental question remains - are you working the farm or is the farm working you?
Many remain in the latter because they fail to address the inefficiency of their ways.
Regardless of what business you are in, 20pc of your time will give you 80pc of your results. In a cropping operation, the seeding, spraying and harvesting may be a bit more than 20pc, but the general principle remains, you still have to put in a lot of lower value time to get the result.
Often, we are blind to our own deficiencies, so having an external review done by the right person may be the only way to bring your inefficiency to a head. The one thing that divides good operators from the rest in terms of efficiency is in two words - self discipline.
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