Chapter 1.6 Assess enterprise changes and new technologies
Background information
Changes within your enterprise or adoption of technology can improve profitability of your enterprise and business.
Being able to quantify the benefits of change is integral to commencing and then committing to that change. Changes may include simple modifications to an existing enterprise (for instance, a change in ram source), introduction of new technology such as livestock handling equipment or complex changes affecting the whole enterprise (for instance, moving the focus from cropping to wool or lamb production).
The potential return or benefit from on-farm investment can vary, so it is worth identifying the high return investments, taking into account financial and non-financial benefits.
At a glance
- Assessing the financial, social and environmental impacts of enterprise change and new technologies requires analysis and planning.
- Determine the break-even point or return on investment for changes or purchases at an enterprise or whole of business level.
- Use robust methodology to remove biased decision making.
When reviewing opportunities, changes or investment in your business, consider:
- Net change in expenses — taking account of any increased costs (cash and non-cash costs such as additional -labour requirements or depreciation on plant and equipment) and reduced costs.
- Net change in income — accounting for increased income and any trade-offs, such as lower wool income if there is an increased focus on lamb production.
- Scale of the investment and flow-on impacts — for example, an investment in pasture improvement will need to be accompanied by an investment in additional livestock and may require increased management inputs.
- Likely repayment period — for the investment and the cash flow implications incurred between implementing the change and realising the benefit, taking account of the economic and production risks involved.
- Lifespan of the expected benefits from the investment — for example, an investment of $50,000 in a change that produces a benefit of $15,000 p.a. over 10 years ($150,000 in total) is better than an investment of the same amount with the same benefit but only for 5 years ($75,000 in total).
- Risk management – nature of, and additional exposure to risk associated with any new or alternative enterprise.
- Non-financial benefits – such as reduced stress or improved work-life balance from not having to train and induct casual labour.
- Strategic fit for your business – how does this change or opportunity fit with your strategic plan and future goals?
- Alternatives – what are the alternatives or the impacts of not doing anything?
Farm businesses most often involve multiple enterprises with complex interactions between them. To ensure that returns are improved over the whole farm, the calculations are best done on a whole-farm basis.
Two planning tools are referenced in this chapter.
The Sustainable Grazing Systems (SGS) one-page planner (Tool 1.12) allows qualitative information to be included. The SGS program aimed to increase enterprise productivity at the same time as improving the environment across Southern Australia’s high rainfall zone. One of the many SGS outputs was the planning framework, which draws on your existing knowledge and aspirations to assess the benefits, potential flow-on effects and implementation challenges of any change you’re considering.
Tool 1.13 provides a partial budget planning template and a worked example (assessing a decision to renovate a pasture) with the subsequent return on investment calculation. The partial budgeting method (Tool 1.13) is most suited to investment decisions that include a new way of doing something you’re already doing or already have, or improving a practice – for example, installing water telemetry systems rather than driving around to check water levels yourself, scanning for multiples and managing ewes based on their pregnancy status instead of scanning only for pregnancy status, or installing grids to reduce the time spent opening gates as you move around your farm.
Decisions you make (e.g., fertiliser applications, changing grazing strategies, selecting rams, re-sowing a pasture, etc.) can have long-term flow-on effects across the system. Seek professional assistance if you need tools for whole-farm analysis across multiple enterprises to quantify the complex interactions between:
- Marginal costs
- Marginal income
- Discounted cash flow analysis
- Time to break-even point
- Lifespan of the investment
- Relative return on capital invested.
SIGNPOSTS
Various virtual producer case studies highlight how livestock producers have overcome risk.
A series podcasts exploring South Australia’s red meat and wool sector. Listen to livestock producers and technology providers chat about how technology can be used to improve productivity and profitability. Topics include eID, water monitoring and yard design.
A partial budget is used to analyse the financial impact of a specific change and compares the positive and negative effects of the proposed change on net income to help you make an informed decision.
A variety of resources which explain how grazing management techniques can be used to achieve the productivity and emissions benefits.
Essential reading for those seeking to manage a modern agricultural business and anyone involved in the agricultural supply chain that needs to understand the importance of farms as the core of agribusiness systems.
Search to find accredited member consultants and advisors in agriculture and natural resource management.
Search this site for consultants and advisors in WA.
Analyse the financial impact of a specific change to your business, such as substituting enterprises, changing input levels or types of inputs, changing the size of enterprises within your business, and buying more machinery or infrastructure.
Held around southern Australia to inform producers of the latest R&D in livestock production and showcase opportunities to participate in training activities for production and business topics.
A one-day workshop that gives producers a broad understanding of the environment in which they operate and the core principles behind successfully maintaining grazing land condition and long-term productivity.
Designed for producers to develop a thorough understanding of the grazing land environment in which they operate to strategically manage their grazing business to optimise land condition and productivity in the long-term and begin developing grazing land management plans for their properties.
Free financial counselling to farmers, and small, related businesses experiencing, or at risk of, financial hardship.
Rural financial counsellors do not give advice relating to agribusiness, law, family issues, mental health or financial advice, but can refer you to other professional services as part of their holistic approach/service.
Activities held in each state to improve sheep management and business skills in a range of scenarios.
