12 RULES OF DAIRY FINANCIAL MANAGEMENT
1. You are farming primarily for PROFIT. You are not farming to see how little money you can SPEND but how much money you can MAKE.
2. You should measure your profit in RANDS only. Only use Rands/CIH or cents/litre or Rands/hectare when comparing your performance in specific areas of income and expenses with other farms. Interpret comparisons carefully; don’t let the measurement units lead you astray.
3. Profit has TWO legs viz. INCOME and EXPENSES. Both these legs must be in BALANCE to realise a profit. Ruthless, unbalanced cost cutting will lead to an even faster drop in income which leads to lower profit. Focusing only on income (production) generally leads to excessive expenditure and lower profit.
4. Compare your financial results with a large group of similar farms, identify areas where your numbers are out of line, both too low and too high. Investigate the REASONS and implement CORRECTIVE ACTION.
5. You are farming not only for this month or the next - many actions have long term implications and money must be allocated to ensure the LONG TERM VIABILITY of the operation.
6. Beware of DEBT, it will cripple the most efficient operation.
7. Spend money on capital items based on PROFIT not on TURNOVER.
8. Many OVERHEAD cost items do not directly contribute to income but are luxuries. Investigate and question “must-have’s” and “used-to-having’s”.
9. Draw up accurate, well-considered financial BUDGETS at least twice a year. Discuss these with your bank manager and keep him/her informed of unexpected costs. Compare actuals with budget, examine discrepancies and take remedial action. Make your budget work for you.
10. KEEP YOUR BOOKS YOURSELF. You must know at all times what is going on with the finances of your operation. Your accountant generally only tries to keep Revenue happy and is of little help in daily farm financial management.
11. Money wisely spent on WATER supply and FERTILIZER is generally money well spent.
12. MANAGEMENT TIME is your most limiting resource. You cannot manage your farm effectively if you spend all your time in front of a computer screen or underneath a tractor. Make sure that you do what requires YOUR INPUT and if necessary farm out work that detracts from your efficient management of the farm.
Allan & Erna Penderis,
Tammac Consultants cc, P O Box 173, Ixopo 3276