Victoria Ivinson: Are farmers’ long-term passions killing their profit?
Victoria Ivinson discusses the conflict between passion and profits in the agricultural industry, and the importance of identifying and rectifying missed opportunities to ensure the financial stability and future success of rural businesses.
Passion projects and a deeply ingrained love of a certain type of farming are leaving many business owners blinkered and income significantly down on where it could be. Unfortunately for the rural sector, the telling signs that it’s time to axe a certain facet of your business can quickly become blurred, especially for those who have spent decades in the agricultural industry or whose family farming heritage stretches back generations.
Passion versus profits. It’s a common thread we see displayed across our range of agricultural clients, and we work closely with those businesses to ensure they can spot and rectify missed opportunities while certifying they are earning what they’re worth. For farmers and rural businesses that have been in operation for decades, it can be all too easy to miss the subtle signs that business operations need to be adapted and updated and difficult to identify why income has stagnated.
For those who have grown a great affinity for their animals, and the daily routines of caring for them, it can be hard to recognise this as a financial shortcoming. But some of these passions are chipping away at farmers’ profit margins and earning them small returns for the hours put in.
For the time spent on these business ventures, we always analyse whether the profits gained are worth it or have farmers simply got an attachment to their animals and are accepting smaller hourly rates as a consequence.
While farmers are facing a decade of change, with Brexit, the war in Ukraine, labour shortages, soaring material prices and the cost-of-living crisis, rural businesses are also having to consistently re-invest and upgrade equipment and facilities to sustain various passion projects and fall in line with constantly updated regulations. This makes it even more crucial to be cutthroat with passions and maximise profits.
The industry is being squeezed from every angle, and there are fewer subsidies available without the need for further input. Therefore, it comes to question whether it really makes sense for rural firms to spend money revamping their operation for a passion that may chew up profit.
By getting down the core of a rural business’ profit makers, farmers can quickly reduce or remove time spent on lengthy and financially unstable passions and reprioritise that time towards money-making aspects of the business.
We would never expect farmers to give up their passion entirely, but by breaking down the numbers, they can continue to incorporate them into the business in a more financially stable way which will help to secure the farm’s future and, crucially, are at least aware that their labour of love was actually for love and not profits.
For example, we’ve had farmers whose trade revolved heavily around game birds, eggs and fattened cattle. By doing a full profit interrogation, we were quickly able to identify, through simple, practical steps such as keeping timesheets, that the game birds weren’t pulling their financial weight. As a result, we suggested removing game birds and using that time and effort to increase egg production and sales. The rural firm quickly noticed major improvement when it came to time efficiency and profit.
At Douglas Home and Co, we urge farming and rural clients to have a deep dive across the board to identify what can be improved to weather the rural storm. We’re certain that, in some cases, adjusting their passions can make way for untouched profit that could make a real difference in the currently worrying economic and rural landscape.
Victoria Ivinson is a rural and farming expert with accountancy firm and tax specialist, Douglas Home & Co.