Presentations & Papers
Business Planning Pays Off (Australia)Grasmere dairy farmers, Neil and Penny McLeod were delighted when their son, John and his partner Bettina Jorgensen, decided to come home to the family farm. And they happily bought more land and expanded the herd to enable it to support two families. But what really made it work was ‘getting down to business.’
“Buying the land and deciding to expand was the easy part,” said Penny who looks after the bookwork and accounting. “The challenge was working out how to make our new system profitable.”
The whole family sat down with a consultant to work out a plan for the future. This involved a thorough examination of the existing production system and a detailed financial analysis. They then reviewed options for change. “It made a big difference to be able to look at the production and financial aspects together, because that’s the way we operate in reality,” said Penny. The process also involved a serious look at risks, and how they’d be affected by external influences such as drought, reduced milk prices and increased costs of production.
The outcome was a plan for major changes. It involved expanding the herd to 700 cows and moving to a higher input system – more supplements, more efficient fertiliser applications, tightening up the split calving pattern (autumn and spring) and a pasture improvement program. The budget allowed for a new rotary dairy several years down the track. The plan also included clearly defined roles for each family member, and a succession plan. John and Bettina took over the responsibility for the milking herd on the original property, Grasmere West. Penny and Neil live on the new property ‘Injemira’, where they look after replacement stock and dry cows.
“Having a sound plan for both the production and financial aspects was what gave us the confidence to make such major changes,” said Penny.
What made this process easy for the McLeod’s was being involved in the pilot trial of Red Sky, a new business management tool designed especially for farmers. “Red Sky made it easy for us to look at the production system and finances together,” said Penny. “I’m no accountant but I can understand the Red Sky reports, and I really like the way it does risk assessments. With big plans like ours, we needed to look at all the risks, and be confident we could survive the unexpected.”
Planning is all very well, but in reality, things often don’t turn out quite as expected. Amazingly, the McLeod’s experience turned out very close to the plan, despite drought, falling milk prices and escalating grain prices.
The big changes began in 1999, followed by two years of intensive development. “At that time, we kept a very close eye on how things were working, with a monthly review against our plans. We were working so hard that it was easy to get bogged down in the daily grind. Without our monthly reviews, we’d have had no idea of how we were going. What they showed us was that we were actually doing well, which was very encouraging,” said Penny.
But there was one hiccup. It quickly became apparent that the new rotary dairy would be needed much sooner than planned. “The old dairy just wasn’t adequate for the larger herd. Milking was taking up so much time and energy that we were heading for burnout,” said Penny.
Again, the family went back to business basics, using Red Sky to look at the options, costs and feasibility; and of course Penny’s risk assessments. “Investing in a rotary dairy was a big step when we’d just been through such rapid expansion, so we needed to be certain we could make it pay.”
Armed with their Red Sky reports, the McLeod’s approached their investors, who were impressed by the detail of their plans. The new dairy was built in 2001, to a strict budget. “About that time, we had two good seasons, with good milk prices and favourable seasonal conditions. We were doing better than our plan had forecasted,” said Penny.
In early 2002, the McLeod’s recognised tough conditions were on the way. Although not directly affected by the drought, lower returns and high supplement costs would hit hard. “So we did what we always do, and reviewed our business situation using Red Sky. We looked at the different scenarios, and reviewed our options. We went to our financiers early and advised them of the situation, and showed them our reports. They appreciated the early notice, and were very supportive,” said Penny.
With conditions on the improve, the McLeod’s are planning another business review, this time to look closely at Injemira, the property where replacement stock and dry cows are kept. “We want to take a closer look at just how efficient this property is. We’ve never separated the costs and looked at it as a separate business. This will help us identify areas for improvement,” said Penny.
“With a high input system like ours, there’s a fine line between getting ahead, surviving and losing profitability, so we have to know where we are. Once upon a time we may have relied on gut instinct, but these days we like to have the facts and figures to back up our instinct,” said Penny.
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