What Sets the Best Farm Owners Apart?
Jan 24, 2025Ever wondered what sets the most successful farm owners apart from the pack?
So often in farming the field day discussion is around the next tactic that will improve your production slightly.
You know the conversation….
The ‘new’ grazing management system that will be a game changer.
Or the new seeder that will place the seed and fertiliser slightly better than the previous version.
The next automated do-dad that will have you kicking back and watching the cricket while the summer weeds are getting sprayed.
But here’s the thing, those tactics are really only valuable if they are applied to a farm business that has a strategy that is set up to win.
AKA, their Business Model is set up to deliver great profit in the majority of season and price scenarios.
This blog is not about the next tactic or fad…
…It is about the strategic principles that will set your farm business up to be profitable now & into the future.
Last year was tough for many.
Here are the results from Farm Owners Academy’s benchmarking that demonstrate just how tough it was compared to the last few years.
ROAM (Return on Assets Managed) is calculated as the Net Profit you make divided by the total value of all the assets used to generate the net profit. It is the true measure of Profitability for Farm Businesses.
High performance is on average a ROAM of 4-6% over several seasons.
The Average Farm Business in Australia over the last 33 years has only achieved a 1.2% ROAM.
Challenging years go hand in hand with farm business ownership. The trick is to set your farm business up so that it more than makes up for it in the good and average years.
Running a successful farm business is a lot like winning a game of chess.
Almost no one wins a game of chess by only moving forward.
Sometimes you have to move backward to put yourself in a position to win.
Sometimes, when it feels like you’re running into one dead end after another, it’s actually a sign that you’re not on the right path.
Maybe you were meant to hang a left back when you took a right, and that’s perfectly fine.
Life gradually teaches us that U-turns are allowed. So, turn around when you must!
There’s a big difference between giving up and getting yourself moving in the right direction again.
If you would like a shortcut to figuring out what is working in farm businesses right now rather than figuring it out for yourself, then join us and other like-minded farm owners at the next TOP Producers Workshop.
In the meantime, here are 7 strategies that the top 20% of producers nail. It doesn’t matter what enterprises you farm; these principles apply to you.
This is a great audit list for your skills as a farm owner. To get the most out of this I encourage you to give yourself a traffic light rating against each of the 7 areas.
So are you:
- Green - nailing it
- Orange - working on it
- Red - needs focus
1. They understand the power of scale
Too many farm businesses operate with insufficient scale. Scale = income generated in a year.
If your farm business currently earns less than $1m per annum, then the number 1 strategic move you can make is to set yourself the goal to achieve a Net Income from Trading of at least $1m per annum.
The graph below shows the Net Profit Ratio (the percentage of income that you retain as Net Profit, but before interest and land access costs) for different scale farm businesses we benchmark.
It is not impossible for you to run a successful and profitable farm business at a scale of less than $1m per annum (we have several members who do it consistently), however, they are the exceptions rather than the rule.
After you hit the $1m scale mark, and we work with a number of businesses with scale well over $10m p.a., it is all about ensuring that your growth is planned to ensure your overhead costs stay in proportion to your income. You can do this by being strategic with the growth steps you make and optimising your business for profitability and a low cost of production.
2. They are focused on productivity
Optimising both the productivity of your farm business and the land assets you farm is key. This includes:
- Setting a clear goal and direction for the business and the enterprises you run.
- Having a clear plan that their family and team are aligned to create great habits around time management and stay focussed on the things that create the highest value for your business, utilising your team to do the rest.
- Avoid being busy doing low-value activities that drain your energy.
- Utilising the land to its highest production capacity and not continuing with unprofitable enterprises or parts of their business.
- Simplify their business, systems, management calendar and enterprises. The simpler a business is the fewer things that need to go right for it to succeed.
3. Understanding KPIs
The top producers all understand the power of Key Performance Indicators (KPIs) and how to interpret them to know the right next step for their business. The four that are really important are:
- Net Profit Ratio > 30%
- Labour Cost Ratio < 15%
- Return On Assets Managed (ROAM) > 4-6%
- Return On Equity (ROE) > ROAM
We have developed a playbook that shows you how to calculate and interpret these KPIs for your farm business. To get your free copy, click here.
4.Understanding debt management
Even a farm business with a profitable business model can still get into trouble with too much debt.
Rather than reaping the rewards from the business you have created, most of what you earn goes to paying the bank interest. We call this “farming for the bank”.
For long-term success you want to aim to:
- Have a Finance Cover Ratio > 3x. That means that your Net Profit covers your finance and land access costs by at least 3x (this is much higher than what most banks will lend to you).
The high-performing farm businesses also understand how to keep their cash free by using debt as a tool in their business and making sure that it is productive debt rather than unproductive debt. Locking up cash rather than utilising finance effectively can significantly hinder progress towards your goals.
5. Financial literacy
High-performing farm businesses know their numbers and make decisions with their numbers every day. They avoid poor decision-making around tax time and understand that profitable businesses pay tax. In many respects the number one KPI for a profitable farm business is that you pay tax, just not more than you have to.
6. Ability to manage climate risk
The top 20% of producers effectively manage the climate risk they farm by:
- Understanding the levers they must pull when the seasons go against them and pulling them early.
- Building buffers into their system, whether that be a class or age group of livestock that goes first when times are tough, confinement feeding yards, or liquid reserves off-farm, they have predetermined tactics to manage a poor season.
Ultimately, they make decisions in the tough years based on the numbers and the probabilities and consider the effects of their decisions over the next 2-3 seasons rather than being reactive and getting caught up in short-term thinking.
Often the impact of a challenging season is determined more by what happens in the next 2-3 years than the decisions made at the time.
7. Confident in embracing technology
Dan Sullivan said that the future belongs to those who can embrace the combination of teamwork and technology.
The best farm businesses are clear on how they will adopt technology in their business in support of their business objectives. Things to consider include:
- Do you have a clear technology strategy for your business? Are you an early adopter or part of the early or late majority waiting for others to confirm that technology works before adopting it?
- Focus on things that drive productivity improvement, reduce waste, save labour or a combination of all of these. We recommend completing a business case to see that there is a positive Return On Investment before adopting new technology to your whole operation.
So how did you go?
Did you get all green’s or was your answer mostly oranges and red’s?
If you are mainly oranges and reds, then your goal is to figure out a plan to get those areas to green’ for your business.
If you are mostly green, then well done. There is a great opportunity for you to expand what’s working into the next opportunity.
That is exactly what the Platinum Mastermind Program is designed to help you do; implement a plan that accelerates your progress towards your goals and either helps you shift from orange and red to green or, accelerate your path towards your goals.
Our next intake closes on the 1st of March 2025. If you would like to explore whether the Farm Owners Academy programs might be able to help you create more profit, more control & more freedom in your Farm Business, then click here to book a Discovery Call with a Farm Owners Academy Coach.
Regards,
Sam Johnsson
CEO - Farm Owners Academy
P.S. Ready to take your farm business to the next level? Our Complimentary Coaching Calls are designed to give you the clarity, tools, and strategies you need to succeed. Don’t wait — book your spot here and start making real progress today!
P.P.S If you enjoyed this blog post, click here to check out our other articles.