Introduction to setting up a beef enterprise

Key Points

• Set clear business goals and monitor and review progress.

• Use specialist advisers to decide on business, herd structure and market options to maximise profit.

• Plan, cost and test beef enterprise options.

• Determine the sequence of investments (capital and time) that will best meet enterprise goals.

• Maintain accurate records for comparison of performance with expected targets.

Why is setting the strategic direction of the beef enterprise important?

Every business has a plan, whether it is in your head, written down in a formal document or scribbled on the fridge door. A written plan is often more detailed, which helps to clarify goals and objectives for you and others involved in the business.

Many businesses fail within five years of set-up because there is no vision or business plan. They are often under-capitalised with a poor business structure and lack of market understanding. When a business does not have a clear objective, its chances of success are considerably reduced. Well established businesses can fail for similar reasons.

In a beef enterprise, a sound strategic direction and business analysis:

• Develops clear goals and objectives and the directions to achieve them;

• Reveals whether it is possible to meet your future needs and goals as well as those of your family;

• Assists in borrowing money at competitive rates;

• Provides a plan that sets you up to improve profitability by, for example, increasing stocking rate and pasture utilisation (key drivers of profitability) while managing climatic variability;

• Supplies the flexibility to take advantage of better than expected seasonal conditions and market opportunities;

• Builds the confidence to consider new options and predict and plan for more difficult periods;

• Helps to clearly communicate the nature of the business when more than one person is involved in its ownership and/or management.

Enterprise profitability tree

The enterprise profitability tree below provides an outline of the key areas of the production system and shows where there are opportunities to have a major impact on the productivity and profitability of your beef enterprise. Some of these opportunities are greater than others. By identifying each production factor that either incurs cost or generates revenue, the tree can help you to assess those components of your enterprise that can be manipulated to have the most impact on overall profitability.

How does this article assist you?

This article looks at setting the strategic direction for your beef enterprise as part of the whole farm business. It is the logical starting point for the MLA More Beef from Pastures manual as it considers the economic merit of options for increasing feed supply, changing feed demand, or targeting particular markets. The options you choose also determine your scope to adapt to unexpected monthly or seasonal fluctuations in feed supply and market prices. This is the foundation of risk management.

The procedures provide guides for determining the structure of your herd, and marketing opportunities that will provide the most profit given your physical and financial resources, your preferred lifestyle, and your ability and confidence to take on risks.

The same economic principles apply to all enterprises in the farming business

The pasture-based beef enterprise is rarely the sole enterprise of an Australian farm business. Most farm businesses consist of several inter¬related enterprises such as sheep, cropping and fodder conservation for use on the farm or for sale. These enterprises compete for shared resources such as land (pasture), labour, and capital, but may also complement each other in the way they are structured. They use common assets, shared labour and forage supply.

The focus of this manual is the pasture beef enterprise. The principles of economic analysis need to be applied across all enterprises within the farm business to ensure that the competition and supporting links between enterprises are accounted for and managed. This ensures that significant changes planned within the pasture-based beef enterprise are evaluated for their impact on the whole farm business. When the whole-of-business economic analysis has been completed the most appropriate herd structure, timing of important management practices and target markets for the pasture beef enterprise can be determined to maximise profit for a multi-enterprise business.