If You Know Your Numbers You Can Build Your Future

You may be a good farmer outside the office, but do you know your numbers? One of the secrets to decision making is knowing your numbers and while it may be a battle, it’s simply a non-negotiable in agriculture today.

NO matter what area, state, or district you go to, you hear the comment asking how these people can be paying so much for rural land.

When I hear these comments, it makes me reflect on one of the biggest takeaways that came from a farm tour to the United States in 2018.

We visited many farms and what I heard often was they stopped buying farms 20-30 years ago because they convinced themselves they were too expensive to buy at the time.

Those same farmers in hindsight, now describe themselves as peasant farmers – their words not mine.

They have an asset base that simply has not grown in size and has resulted in having something that doesn’t have much borrowing or leverage potential. Most of these US farmers were grain growing businesses that now lease country. What they have invested in is machinery, which unlike land, is a depreciating asset.

And reflecting on what I saw on that trip to the US, is what happened there the same thing that is starting to happen in Australia now?

To balance that “too expensive” argument we are hearing right now, do you realise that the cheapest farmland in the world in area to grow a tonne of wheat is still Australia?

So, what is it that sets the buyers apart from the non-buyers when it comes to farming families expanding their operation?

In a nutshell, these are the key things that I’ve observed in the industry across different states.

You may not like the answer, but without doubt, what sets the two different groups apart is financial literacy, alongside the teams built by these families that assist in the decision-making process.

There is a saying that no one is as smart as all of us together, and the ability to expand by these farming families is simply down to that.

Those that are expanding know their numbers, are financially literate and if they have a knowledge skill gap, they fill that gap to give them confidence and reassurance in decision making.

And guess what - that’s exactly what we had to do when we started Kerin Agriculture in 2007 when we started to farm as our own entity.

So, what did that look like for us?

As farmers, we believed we were around average but as for financial literacy, frankly, there was none.

Without doubt, that was the biggest anxiety in our new farming business.

We had two choices – either stay the same or change - so we opted to address that gap in our business, but we kept in mind, change never comes without tension.

So let me throw something at you. Tell me what team ever wins the grand final without a coach?

Our grand final was to build a business that was green and growing, not ripe and rotten and to do this, we needed a coach for our business.

When we did this, those business coaches were a bit harder to find but there are plenty of options now and the best way to find one is word of mouth, someone who has worked well for different families.

Our coach came into our business and set the rules for the game, how we play it and made us financially and strategically accountable on a monthly reporting basis.

In the first 12 months of the process, it was painful because we were constantly being told things we didn’t want to hear. That is, we thought we had a good business, but in fact financially there was nothing flash about it at all.

Part of what your business coach does, and it was the first thing we did, was to set, one-, three-, five- and 10-year goals. What did all those goals have in common? They required money.

Yes, it created tension when we had to achieve those goals and find ways to make them work. The choice to spit the dummy is always there. But here’s the thing – we spit the dummy and say this process is not for us and we can remain comfortable in our own arrogance and ignorance, and we go nowhere. The carrot to keep going was if we wanted to achieve those goals and reach those milestones, we had to create a culture of financial discipline to get us there.

Yes, without a doubt, it did make us uncomfortable.

But remember a mind that is stretched never returns to the same size.

We kept reminding ourselves that we had those one, three, five and 10-year goals and that kept us heading on that magnetic north path.

Part of a business coach’s job is to stop us straying off, getting distracted and keep us working toward those goals.

It is a process that takes a lot of discipline on both sides.

So, when did the anxiety about being financially illiterate start to fade? The day Kate and I both understood our Key Performance Indicators.

Learning to understand the numbers comes with discipline, from the monthly phone hook up meetings with the business coach going through the Business Position Statement generated through our farm accountancy software.

And do you know what? Those KPIs gave us the information to make the right decisions.

Take for instance the finance ratio. It tells us what percentage of gross turnover is paid in interest.

If you finance ratio is getting near or creeping over 15 per cent, servicing debt starts to get really challenging. And what does that mean? It means your turnover is not high enough to service your interest bill.

Yes, you might think the problem lies in the amount of interest you are paying, but guess what? It is turnover that services interest. So don’t sit there and stare at your interest rate and think you have a problem, you have a turnover problem.

I can’t change the interest rate, but I absolutely can influence turnover and that is something all of us can do.

I clearly remember the original goals set by Kate and I. Two of Kate’s goals were we would educate our kids in schools that suit each child best, and the other, agreed goal, was that we would build a dream home by Christmas 2010.

One of my goals was to build a land asset base to run 25,000 DSE, with just myself and one other labour unit. It seemed impossible but it happened so much more quickly than I thought.

The next big goal was to develop a livestock-based business where the risk of climate was mitigated by our management by making decisions on time, ahead of time, all the time.

Fifteen years later, the business doesn’t even resemble what it looked like in 2007.

Would we have got there by ourselves? Definitely not. Did a business coach help us? Absolutely yes. 

If we were to note the lessons we learned, it came down to five key things:

• You need to know and completely understand your numbers including KPIs.
• Quickly fill the knowledge gaps.
• Be disciplined and stay on the path that keeps you heading towards your goals.
• Keep an open mind and ask the question why.
• Hang around with people smarter than you are.

Getting a business coach was integral, having good team players to fill knowledge gaps was important but when it came down to it, it was up to us.