- Business Management
- Husbandry & Welfare
- Grazing Management
Business finance and risk
Successful rural enterprises require managers to have a sound understanding of the enterprise's financial position as well as an appreciation of the potential financial impact of any enterprise changes (ie: risk).
This helps in the identification of potential efficiency gains, enables the business to be more robust in withstanding market and environmental fluctuations and aids the identification of opportunities to invest both within and outside the business.
Understanding business financial performance indicators can help to:
- Assess the viability of the business.
- Determine the sensitivity of the business to external factors such as interest rates and shifts in markets.
- Monitor costs of production.
- Evaluate investment options.
- Evaluate management changes.
- Investigate scenarios for improving profitability.
- Compare the business performance with forecasted performance from the business plan.
- Compare budget to actual performance.
- Compare with similar businesses.
What to do
When assessing the performance of the business it is important to determine why the analysis is being performed. The financial statements prepared by an accountant are designed to meet the Government's taxation compliance requirements. They are not designed to assist in measuring business performance.
Business managers are primarily concerned with the cash position of the business - what effect the business operations will have on the bank account at the end of the year and, over the longer term, the effect on net worth.
The cash position of the business can only be established through recording and reporting the income and expenditure of the business throughout the year. Taxation financial statements will not provide the required information. Effective reporting relies on good record keeping including suitable cashbook and budgeting systems.
How to do it
The critical aspects of financial analysis for any enterprise are:
- Enterprise gross margins
- Return on investment
- Cashflow budgeting
- Cost of production
There are a number of goatmeat production enterprise alternatives that require varying degrees of resourcing and it is important to develop a realistic expectation of what the return on investment for each enterprise may be. This may also be in comparison or complement to other production systems such as sheep or cattle.
The potential for a well managed rangeland goat production enterprise to complement a cattle or sheep operation should not be underestimated. This may be realised through increased feed utilisation as well as increased and diversified income.
In comparing a rangeland goat enterprise to other enterprises, it is important to look beyond the price you can expect to receive for a unit of production and fully consider start-up or buy-in costs as well as the ongoing costs required to deliver a unit of production to market.
The level of capital required to establish an enterprise is also an important factor with the availability of rangeland goats meaning that they often compare favourably to cattle and sheep which have to be bought in. Even when goats have to be bought in, it is often at a lower unit cost than for cattle and sheep.
Cost of production is an important consideration – there is little point in producing a product at a cost which exceeds the market price. Before investing in an enterprise, you should develop a clear understanding of what the market wants and what it is prepared to pay – there is no point in producing a prime lamb type goat carcase only to find that the market wants a lighter and leaner alternative.
Once you know what the market wants, calculate what it will cost you to produce that product and develop your enterprise to operate within that cost structure.
Financial analysis is a specialist area. Producers should always seek professional financial advice if they are unsure how to calculate or interpret financial performance indicators or reports.
Module 2: Financial analysis of the GiG Guide provides detailed information regarding financial analysis, information required and the relevant calculations.