Most agricultural businesses in Australia grow a combination of crops and/or services. There are crop rotations, mixtures of permanent and annual plantings and changing markets and prices that determine which crops and management approaches are most suitable at any particular point in time.
As Australian growers have such a high exposure to ‘mixed’ farming systems it is important to understand gross margins and how to assess gross margins in order to make profitable business decisions.
The attached 4 page fact sheet (pdf 325 kb) explains gross margins and the benefits of gross margin analysis, and how to use the ‘VegTool’ as a method to complete a gross margin analysis for your particular vegetable growing enterprise.
The following tools will be helpful, but they do not replace the need for a good business plan and detailed financial analysis for the big decisions and investments. There are people and companies who can help.
Key Points :
Gross margins are useful for decision-making. They are a logical and systematic way of assessing each activity including input costs such as water, fertiliser and labour and yields or market prices.
Different scenarios are compared so that a robust decision can be made on which crop to grow, or how much of a particular crop to grow.
- A Gross Margin calculation is a simple method of calculating the economic benefit of a particular crop by looking at the income and costs associated with each crop.
- Gross Margins help with decisions such as:
• Which crop to grow?
• How much of a particular crop to grow?
• What is the impact of higher costs associated with a crop?
- Gross Margins are useful but there are other considerations such as debt, crop rotations and risk that need to be measured and managed.
- Veg Tool is a custom made, user-friendly piece of software for the vegetable industry to measure and compare gross margins.
While a decision might make the most money, it may result in less family time and more stress; it is important to consider impacts on people and resources when making financial decisions.
These tools are not designed to be a complete solution to the financial management of your business, only to stimulate thinking about the best way of analysing and solving a particular situation or problem.
Often is it helpful to get another opinion from an experienced consultant or accountant so that you can make the best decision possible for your situation.
See Also :
Business Decision Making
Business Management
Vegtool - free download from the AusVeg website
Cash-Flow and Budgeting
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