The real value of farm records lies in using them to measure profitability, compare enterprises and guide long-term business decisions, says livestock management specialists Herdscape.
By Maile Matsimela, digital editor at African Farming
Farm records only become valuable when they are used to improve decision-making. According to livestock management specialists Herdscape, analysing production and financial records enables farmers to measure enterprise performance, compare profitability and assess the overall financial health of the business.
The organisation says one of the most useful outcomes of good record-keeping is the ability to calculate gross margin per unit, a practical measure of profitability at enterprise level.
Also read: Five performance indicators every livestock farmer should track
Using gross margin to compare enterprises
Herdscape explains that gross margin per unit allows farmers to identify which livestock enterprises make the strongest contribution to the business. By analysing stockflow records alongside production and financial information, farmers can compare the performance of different enterprises and determine where resources are generating the greatest returns.
Stockflow records lead directly to gross margin calculations, making accurate record-keeping an essential part of measuring enterprise profitability, the organisation notes. Rather than relying on assumptions, farmers can compare enterprises using measurable financial information.
Looking at the business as a whole
While gross margin is an important enterprise-level measure, Herdscape says farmers should also assess the performance of the farming business as a whole.
This requires viewing the business from an investor’s perspective by measuring the return generated on the total capital invested in the farm. The objective is not simply to maximise gross margins within individual enterprises, but to maximise the return on all the resources committed to the business, says Herdscape.
Looking at business performance in this way provides a broader understanding of whether the farming operation is creating long-term value.
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Understanding the risks
If a farm’s return on assets remains below the rate of inflation, the business is losing real wealth over time, cautions Herdscape. Under these circumstances, expanding through debt financing becomes increasingly risky because interest costs are likely to exceed the returns generated by the farming enterprise.
This could result in farmers borrowing against their land simply to finance operating costs instead of investing in productive growth, increasing financial risk over time, notes the organisation.
Also read: A smart farmer keeps accurate financial records
Building resilient farming businesses
Keeping accurate farm records and understanding “your numbers” creates the foundation for better-than-average business management, say Herdscape. Good records provide the information needed to understand which enterprises are performing well and whether the business is likely to remain sustainable over the long term.
Regenerative grazing and livestock management practices strengthen the productive capacity of the farm itself, the organisation concludes. However, the greatest benefits are realised when sound business management and regenerative livestock management are applied together.
“One without the other limits success; together they create a business that is both ecologically and financially resilient,” Herdscape says.
Keep an eye out for the next article in this series.
Source: This article is based on technical information and guidance provided by Herdscape. For more information on regenerative grazing, livestock management and Herdscape’s training programmes, visit Herdscape or contact them on frontdesk@herdscape.co.za or 083 781 3441.
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