It’s impossible to know how your farm is going to perform in the future without understanding where it’s currently at. We want to help you find out how your farm stacks up and we think getting to grips with farm expenses and revenue is the perfect place to start.
What to measure?
A ratio of your Farm working expenses to your Gross Farm Revenue.
Farm working expenses
This is all the costs to run a farm, excluding depreciation, interest, rent and debt repayment.
Gross farm revenue
Includes all your sales, minus all your purchases, and includes income from things like rebates, wool and cropping. It is important to make sure stock adjustments have been taken into account.
What does it tell me?
This ratio is a measure of your farm’s financial efficiency and shows how much you’re spending to generate income. It takes into account both production and income, as well as the expenses, to paint a clear picture of your farm’s efficiency.
Why measure it?
Farm working expenses and gross revenue are key drivers of profitability. Digging deeper into these areas will help uncover how you can maximise revenue or decrease expenditure, or both. When margins are tight, the ratio is one that can paint an accurate picture of not only how your farm business is performing, but what adjustments can be made to operating and input costs.
It’ll also help when approaching your bank for financing. This ratio is one way to show your farm’s financial stability and can influence how much it will cost you to borrow money to sustain your farm business.
Using easily available numbers, you can measure your farm’s financial health against established benchmarks. Benchmarking expenses and revenue in a standard format means you can easily compare your plans and results against industry figures, and previous years.
How can I measure it?
It’s easy using Cash Manager Focus:
- Navigate to the Economic Farm Surplus Report
- Choose from the list of options to set up your report
- Scroll down to the Farm Expenses Total row and look at the figure in the GFR (%) column. It’s as easy as that!
What should I be aiming for?
As a rule of thumb, a figure under 55% is really good, providing you are fully maintaining the business. But what’s more important is to compare your result with previous years, or benchmark against industry averages.
Here are some helpful resources to help you benchmark:
- Sheep and Beef farmers can compare against the B+LNZ average for that year/land class that’s available on their website.
- For dairy farmers, benchmarking is available through the DairyBase service.
You can also take part in a formal benchmarking process e.g through your farm consultant, like BakerAg’s FAB analysis, or accountant.