Plan sets up farm for business success

01 Aug, 2017 04:00 AM
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While Steve and Tania Luckin see farming as unique in that they work where they live, they say they must never lose sight of the fact that they are operating a business.
The time and effort that we put into planning and monitoring of our business is vitally important.
While Steve and Tania Luckin see farming as unique in that they work where they live, they say they must never lose sight of the fact that they are operating a business.

Heywood, Victoria, farmers Steve and Tania Luckin believe that developing operating plans and setting goals is critical to the success of their business. Here they discuss their farm business approach.

Our milk production targets and fodder and financial budgets are set annually. These form the basis for our Annual Operating Plan (AOP) and define the annual key performance indicators (KPIs) that we will monitor throughout the year.

The AOP and KPIs are shared with our support team -- which includes employees, consultants and service providers. Budgets and targets are updated monthly to actuals to monitor progress. This allows for proactive decision making, as we know how we are tracking at all times.

We conduct an annual review of our business that includes:

  • Benchmarking using DairyBase -- comparing results with last year and comparative farms. We use this data to identify and prioritise areas for improvement.
  • SWOT (Strengths-Weaknesses-Opportuniti es-Threats) analysis -- Identify weaknesses and threats and discuss how we can turn them into strengths and opportunities.
  • Risk analysis -- identify all risks to our business, review risk management plan and update where necessary.
  • Review Budget vs Actuals and Annual KPIs. This is most important.
  • How did we perform against targets?
  • Did we meet them? If not, why not?
  • How are we tracking against short and long-term goals.
  • We then use all of this information to identify our priorities for the coming financial year to set targets, KPIs and budgets for our new AOP.

    It is essentially our roadmap that helps determine the pathway to our final destination (goals that are outlined in our strategic plan).

    While we believe it is important to set goals, targets and budgets, we are convinced it is just as important to monitor progress during the year and conduct an annual review. This has been key to us successfully achieving our goals.

    Using DairyBase and the Standard Chart of Accounts has helped the Luckins with their business benchmarks and enabled them to make informed and practical decisions for business improvement.

    We have always benchmarked our business against DFMP (Dairy Farm Monitor Project) data and used this information to help with priority setting. DairyBase has now become the tool that we use to conduct this analysis.

    It consolidates the information into one system and allows for easier comparison of farm physical and financial data, and we also use it as our benchmarking tool for our annual review. While it's not designed for this, we have been able to use it for scenario testing budgets when considering changes to system (for example, stocking rate).

    The Dairy Australia Standard Chart of Accounts (SCOA) is similar to the system we were using, so it was easy to align our system to incorporate the SCOA to allow for easier data entry into DairyBase.

    By benchmarking our business over a number of years, we identified our bought-in fodder costs were too high and as we were split calving on a dryland farm, this proved to be an on-going inherent risk to our business. After working through some options and further analysis we made a significant structural change to our calving pattern and moved from split calving to a single-calving system. This has resulted in the changes shown in Table 2.

    The Luckins see a 'business-first' mindset and detailed planning process as the key elements in their business practice.

    While farming is unique in that we work where we live, we must never lose sight of the fact that we are operating a business. Setting our AOP is vitally important to our business as it provides us with the directions we require to achieve our short-term goals allowing us to continue on the pathway to achieving our long-term goals.

    We use all of the above to set the AOP and most importantly we monitor and track progress throughout the year. As noted earlier the AOP and associated budgets are shared with our support team.

    We have split our business into six Key Management Areas (KMAs), each of which has its own targets and individual monitoring system. Every KMA is monitored on a regular basis as applicable, that is milk quality and production -- daily; pasture growth and rotation -- weekly; financial budgets -- monthly.

    We are big believers in getting external expertise when required. We use external expertise in a strategic manner to help us achieve the targets we have set. We have just engaged a monthly consultant and his brief is nutrition and agronomy -- specifically to increase home-grown feed and per-cow production maintaining a profitable margin over feed costs.

    We also strategically use vets that specialise in fertility to help us develop a plan to achieve our fertility targets.

    The other way that we use external expertise is when we have an unexpected issue arise that we can't fix ourselves. Once we have identified the problem we then engage an expert and develop a plan with them, implement and monitor it. Part of the plan always includes risk management to ensure the issue does not arise again or if it does the impact is lessened.

    The business has performed well for the past 12 months and the Luckins will continue to plan for the future.

    We attribute our successful last 12 months to the planning we conducted at our annual review last June. We went through the budget line by line to see what expenses we could defer or reduce and what we had to retain. Every dollar spent had to provide a return. We made sure that the changes we were making to the budget still allowed us to achieve our targets so it wasn't simply a matter of cutting costs but spending money more strategically.

  • We still spent money on soil tests allowing us to apply strategic blends to individual paddocks.
  • We changed our grain-feeding strategy, resulting in significant savings.
  • Capital expenditure was put on hold for 12 months.
  • Price checks were run on all overheads, dairy and herd expenses.
  • We were proactive on repairs & maintenance (R&M) to prevent major breakdowns so we were able to keep R&M costs low.
  • We set very clear targets in our AOP that were achievable without impacting our budget. We spent a lot of time on risk analysis and ensured that we had plans in place.

    Budgets were monitored closely and kept "live", i.e: the wet August impacted production, so milk and financial budgets were updated accordingly so they were real and there were no nasty surprises.

    Key learnings from the past 12 months:

  • Monitor budgets closely -- no nasty surprises and allows for proactive decision making.
  • Keep an eye on margin between milk price and cost of production.
  • Know where the "flex" is in the budget: what are the short-term changes that can be made that won't have a long-term impact on business.
  • Communication with support people is very important -- needs to be timely and honest. We have always had this policy and it works well.
  • Focus energy on what we can control.
  • What this past year has re-enforced to us is that the time and effort that we put into planning and monitoring of our business is vitally important as we have achieved our goals and made a profit under what were difficult conditions.

    Each year will present different challenges but they can be managed and mitigated when you have an in-depth knowledge of your business. D

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