Plan to improve your income

June 2016

I am of the opinion that the serious and prolonged drought has very strongly emphasised one aspect to successful farming. This aspect being to plan your farming business every year as thoroughly as humanly possible. One cannot take it for granted that every season will be a good season with above average rainfall. Every year you must re-think and re-plan your business.

In this article we want to put the emphasis on the income side of your business and you will notice that this article is closely related to the previous article on risks. Risks especially climatic risks are part and parcel of the environment of our farming businesses in South Africa.

When considering your business and your aim with the business, one must remember the following equation: Profit = Income - Expenses (P = I - E). This equation portrays that for a profit to be made, income must be higher than expenses. With regards to financial management the use of a proper budget can only be emphasised again. This means to plan your business properly beginning with detailed management production programs for every enterprise and from that a budget for the financial year in advance. Then farm according to your plan or then your budget.

P = I - E indicates quite clearly to make more profit one must increase the income or decrease the expenses or do both. Something easier said than done. The question for discussion is then how can you increase the income of your business. The basic principle is to sell more products or sell your products at a higher price, or it can be a combination of both.

First of all let's consider the aspect production of products with the aim to sell more products. The basic principle which we have already mentioned a number of times in other articles is to do the basics right to improve production. In practice farm with whatever you are farming as correct as possible. Prepare your lands correctly, plant at the correct depth, do proper weed and pest control. Apply conservation farming practises. Over a period of time the soil fertility will increase resulting in higher production. Always consider new techniques and equipment that could be helpful in achieving better production. Investigate to diversify your business into a few enterprises aiming to increase your income and manage risks. Attempt to always produce quality products.

Always seek to use improved cultivars. Use cultivars with improved production (this will increase income) and cultivars which are more disease resistant acquiring less remedies (to decrease expenses). Consider your production systems very carefully all the time. Sometimes a small aspect can have a major influence to the better with regards to improving your production. For instance take soil samples every year and fertilise according to the results.

Another aspect to consider very seriously is that of productivity. How do I go about to improve productivity? To get a job done people are involved and they use other resources, therefore JOB = PEOPLE x RESOURCES.

Consider your resources which could be tools, equipment, machinery, facilities, and so forth. It is important that a job is done using the correct and suitable resources. Furthermore all resources must be in a good state of repair and maintained as such to get the job done properly in good time. Proper resources will assist in correct production and achieving higher production and therefore a higher income.

What about your employees? Are they properly trained and motivated? Do your employees have the necessary skills, expertise and knowledge to do the job?

Secondly, regarding the marketing of your products. Attempt to sell your products at higher prices by for instance diversifying the marketing of every product, then you are not dependant on one buyer.

As already advised attempt to sell high quality products. Quality products always achieve higher prices. The quality of products are affected by a number factors such as climate, the soil, method of production, harvesting, packing and transport. The effects of climate is the most difficult to manage. However the production process is manageable, it depends on yourself.

What about value adding. This could increase your income by achieving higher prices for the value added products. However be mindful of the extra costs to add value.

Do you know your buyers personally? Have you visited the different marketing venues? Do you understand the requirements of the buyers of your products? Are you a responsible producer and seller by delivering your products on time as arranged and according to the specifications.

Once again – the key to success is proper management by planning, organising, implementing and controlling thoroughly. In this article we have shed a bit of light on the necessity of thorough planning with the emphasis on the income. Remember without a proper plan you are on your way to nowhere.

Article submitted by Marius Greyling, Pula Imvula contributor
For more information, send an email to mariusg@mcgacc.co.za.

Publication: June 2016

Section: Pula/Imvula