Profit is different from income

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Posted by Brendon Walsh on 2 April 2014

This statement may seem a little obvious and I would agree. However many in the sheep and beef farming industry unfortunately tend to confuse to two concepts, often to a point where they are accepted as one and the same. Perhaps this is a big contributor to the lack of profitability in our industry?

Profit is almost always confused with income in farming. Let me come to why shortly. For now here are 2 basic definitions relating to animals in a sheep and beef farming business:

  1. Profit: the spare cash remaining from the income, after expenses have been allocated.
  2. Income: The money received from a sale (as a pure definition), the value change over a time period (either the net return from the sale value after the purchase price has been deducted or the value change over any defined time period), or the payment/return for grazing someone else’s animals for a period of time.

A farm business person can only talk true profit after they have deducted a share of all farm working expenses from the sale price/net income/grazing income. Believing the income to be the profit is like running only half of your business but expecting a full and positive result. Riding a 2 wheeled bicycle with only one wheel is another way to look at it.

I have often asked farmers who (for example) purchased a store lamb for say $70 and sold it for $100 what the profit worked out to be. Almost invariably the answer is “$30.” But there is no way this is anywhere near accurate. When asked “what about the Farm Working Expenses?”, the answer is usually “oh they are over here (separate) somewhere.”

Animals are often kept on-farm until they achieve a goal “margin” or value change. If this is through a non-profit period and/or over a long period of time such as 10 weeks as opposed to 4 weeks (to achieve the $30 value change), the share of all farm working expenses allocated to that animal is vastly different. See my ebook for an explanation, here.

To be fair, the main reason most farmers do not allocate expenses is because they do not know how to. Farm Working Expenses include Accountant’s fees, R&M, fuel, electricity (and all others). As well as this, current farm analysis systems do not allow the process of automatic Farm Working Expense allocation (to animals) to occur. This shows exactly how income and profit is confused. If a farmer doesn’t know how much profit they have actually made (or are going to make), any decision may be acceptable if income is all that is focussed on.

To base major business decisions on such information in a multi-million dollar business (which most farm businesses are) is pure madness!

By making a basic assumption, all subsequent thinking, actions and results are based on that assumption. If the assumption is shaky then so are the subsequent thinking, actions and results. Can you now see how sheep and beef farm business results are consistently poor?

To get consistently great results in sheep and beef farming takes effort and departure from the accepted norms (if accepted norms are not helpful). New results are obtained by using a structured process designed to take you beyond the old beliefs, thoughts, habits and actions. That is exactly why the GrowFARM® System was built.

To change, and therefore create results you can be proud of year after year, these new results will require new ways. If the system helping you do this is solid, you just need to follow it and get on with the job. The GrowFARM® System is proven and repeatable by anyone who follows it. Our private clients are proving it!

Get the low down on this by downloading my ebook called 7 Reasons Why Sheep And Beef Farmers Don’t Make Profit - And A Step By Step Process For Turning Your Farm Into A Profit Generator. 

Download ebook here

It is complimentary and is my gift to you!

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