FIELD NOTES FROM A NEW FARMER

Today more than ever, you need to look at methods of cutting costs. If your business is doing well, reducing overheads will boost your profits. If you are struggling, it may well save your operation from going bankrupt, says Mbali Nwoko.

Over the past months, many businesses have had to reduce costs drastically to remain afloat due to the economic conditions and uncertainty brought about by the COVID-19 pandemic. Farmers should be thinking along the same lines, if they are not doing so already.

Rising fuel prices, low market prices for certain fresh produce, retrenchments and a reduction in consumer spend should serve as indicators of where the economy is going and how this will affect the agriculture sector.

Put another way, farmers urgently need to look for ways to reduce overhead costs.

There is no telling when South Africa will see the back of the COVID-19 pandemic, and many business owners need to think of a different approach to running their operations over the coming months.

One of the most important strategies under these circumstances is to prioritise expenses that are crucial to business growth and to do away with expenses that are not essential.

Cutting costs does not necessarily mean that your business is in financial trouble; it’s a strategic, planned approach aimed at ensuring long-term business survival and continuity.

TIPS ON CUTTING COSTS

There are several ways that you can reduce the monthly overheads in your business, including:

• Decrease employee headcount

One of the first measures that many companies resort to when trying to cut costs is to reduce the number of employees in the workplace.

To do this effectively and fairly, you will need to carefully evaluate every employee’s role and contribution to the company. In general, businesses tend to retrench individuals in administrative or supportive roles first and retain individuals in income-generating positions.

On the farm, you would tend to retain workers who perform specific tasks and retrench those who carry out minor tasks.

Another way to reduce your overheads where employees are concerned is to outsource. If it requires a team of five people to manage your monthly bookkeeping, for example, consider hiring an accounting firm that will do the same work for half of the amount it costs to have five people on your payroll.

• Prioritise equipment and machinery

Businesses such as Uber have shown that there are many ways that companies can thrive today without having to own assets.

If your farm has tractors, implements and other machinery on its balance sheet that are not bringing in any value to your business, consider selling them, or downsizing some items to better suit the reduced size or output of your current operation.

• Turn production assets into income-generating assets

Some machinery and equipment can be rented out to other farmers.

Similarly, a packhouse on your farm used to its full capacity only during the summer season could be converted into an additional income stream during winter.

You could, for example, package and process fresh produce and distribute to clients looking for a specific product.

Most companies in the food/retail business prefer not to process or package in-house and would rather pay a premium to outsource that function.

• New contracts

Another way to reduce monthly overheads is to consider selling in bulk; less packaging would then be required. Review existing contracts with customers and suppliers, and identify any cost-saving measures that can be implemented in future agreements.

• Train staff

Train your staff members and refresh them on some of their workplace responsibilities as well as the effective use of company resources. Yes, this will cost money, but it will be worth it in the long run.

Training can add value and reduce any unforeseen errors and/or accidents that occur in the workplace. These often result in additional capital outlay.

• Evolving business models

As business owners, we often have to re-evaluate our business models to remain afloat in difficult times, and also to become more profitable.

Controlling your business expenses not only involves identifying the gaps in your operation where you can save, but requires action to steer the business forward in order to achieve long-term business goals.

CUTTING DOWN ON COSTS DOES NOT NECESSARILY MEAN YOUR BUSINESS IS IN FINANCIAL TROUBLE; IT’S A STRATEGIC APPROACH AIMED AT LONG-TERM BUSINESS SURVIVAL