Broiler farming like any business survives by margin.
The success of the business depends on you covering all costs and thereafter…
This is your reward.
Your return on investment or (ROI).
Let’s be clear,
…this is NOT payback for your time.
But rather repayment for your efforts in investing in the venture.
Your time is a business expense and therefore is (should be) accounted for – before profitable earnings (EBITDA).
That reminds me,
If you haven’t come across EBITDA before, you’ll want to read this post.
It shows you why your EBITDA is one of your most important business metrics.
From this you can accurately measure:
- True ROI (having the business work to pay you)
- Exit valuation (getting a cash lump sum if you decide to sell the business)
- Real earnings (a salary or wage for your time spent running it)
…all of the reasons why you decided to start a broiler farming business.
Enough about EBITDA, and back to profit.
Your first real indicator of financial performance in your broiler business is gross profit:
Sales revenue – the cost of goods sold.
In other words,
What you have leftover when you subtract feed and chick cost from what you made at market.
As an indicator, this is the most important to keep an eye on.
It reads as both an absolute number and a percentage of overall sales revenue.
E.g. Rs.958,572.94 (30%)
What does this tell you?
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It tells you how well your business is doing…
…by turning primary inputs of:
- chicks and;
- feed
…into meat and money.
Outside of this are your operational overheads or indirect costs.
In a nutshell, these are bills that you incur in running the farm, but indirectly related to your bird’s growth.
Much like payroll, electricity costs, transport etc.
Once these are taken away, you’ve got EBITDA.
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA).
- Have interest on loans to re-pay?
- How about income taxes?
- Replacement charges against equipment in your farm?
These all happen after EBITDA and are treated as unique to the individual circumstance of the owner.
But EBITDA is what you’d be left with – no matter who owned the farm.
For this reason,
EBITDA is often used as a measure of valuation for pricing the business transfer of poultry farms.
It’s universal.
Want an overview of factors influencing your broiler farm profit?
4 stages of influencing broiler farm profit.
#1 – Funding: taking on debt brings on interest costs. This eats into profit.
#2 – Ownership: contract farming involves prescribed profit splits, which by nature divide the spoil. [There are other benefits, however. So it’s worth calculating the trade-off.]
#3 – FCR: this is the engine behind your broiler gross profits. The better you are at converting feed into meat, the wider your gross profits. Remember, there are always limits here. There simply comes an end to this pursuit, you have to know where to stop.
#4 – Operationally lean management: the fewer inputs you need to keep the business ticking over, the more left in the pot before your final deductions
At these four critical stages, you can widen your margin of broiler profits.
The thing to avoid, however, is compromise. Cutting back can hinder going forward.
You need to know when enough is enough. Moderation.
The bottom line…
The four steps outlined above are your critical pathway to broiler profit.
In other words,
If you want to improve your take-home money from the broiler business, then your focus in these areas will put you in good stead.
All the control you need for sustainable business profits.
And now, over to you:
Have you made mistakes before on miscalculating broiler profit?
It’s nothing to be ashamed of. We’ve all made these mistakes before.
Or perhaps you are new to this and you’re surprised by some of these points.
Either way, write me back and let me know.
I read every email.
Speak soon.
Temi
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