Acing the business of farming

Many farmers don’t start out thinking of themselves as business managers, but strong business performance is key to long-term success. Running a farm with a clear business focus leads to a more resilient operation, providing greater financial security, flexibility and opportunities for the future.

Top-performing farm operators don’t just work hard – they focus their effort where it matters, like in business management. They analyse their business performance annually, benchmark against high-profit farms, manage cash flow monthly and actively seek insights from the best operators in the sector. They don’t farm in isolation – they connect, learn and improve.

Farmers can also access expert support, including rural accountants, bankers and free business tools like DairyBase and Econ Tracker. Despite these resources being readily available, only a small portion makes full use of them.

Where to start?

No matter where you are in your farming journey, think about your goals and break them down to see what you can do to achieve them. Do you want to own a farm one day? Or is it really just financial security and owning your own house that you want? Each person and family will have different aspirations. No one can tell you your goals; they’re unique to you and what you want to achieve.

Goal planning can be done in different ways – on your own, with a business partner, or as part of a group. Some prefer informal discussions, while others find value in structured courses or working with a coach or consultant. Choose the approach that works best for you.

Once you have a clear direction, it becomes easier to assess where you are now and identify any changes needed to reach your goals.

But whether you’ve considered the big picture or not, start by determining your current position and then your targets.

Winter is a great time to review your financial situation. Use tools like DairyBase or accounting reports to assess your expenses, reflect on the season, and compare your performance to benchmarks. Adjust your plan as needed and go from there.

Important metrics

Two key metrics are essential for understanding and monitoring farm business performance: cash surplus and operating profit. Cash surplus represents what’s available for debt reduction or investment, while operating profit is just what’s dropping out of the farm operation before interest and tax – similar to EBIT (earnings before interest and taxes).

Cash surplus is the money left after covering farm expenses, interest, tax and personal drawings. A positive cash surplus means the farm is generating more than it spends, meaning there is surplus available for reinvestment into debt repayment or other assets, such as stock or land.

Without a positive cash surplus over time, a business risks going backwards, as ongoing borrowing becomes necessary to stay afloat.

Operating profit is a key measure of a farm’s financial performance, calculated by subtracting farm costs from farm revenue.

Unlike cash surplus, it excludes tax, interest and capital spending.

New Zealand farmers have access to world-class benchmarking systems, making it easier to understand how their operation compares.

Understanding these figures in the context of your own business is crucial. Does your spending align with your financial and personal goals?

For instance, if your goal is to buy a herd of cows, are you managing your finances in a way that brings you closer to achieving it.