Aug 29, 2014
Home| Tools| Events| Blogs| Discussions Sign UpLogin

Guidelines on Pay

November 18, 2009
By: Sara Schafer, Farm Journal Media Business and Crops Editor
 
 

Linda H. Smith, Top Producer Executive Editor

Many farm operations don't really treat management and labor as defined expenses—the owner "pays” himself whatever is left over. Roy Ferguson of the Ferguson Group, a financial consulting firm, suggests some guidelines to help you calculate where you stand:

1. Management Comp. This should be 4% to 6%, occasionally as high as 8%, of total sales. "If your farm generates $1 million or more, you should have no difficulty justifying $40,000 to $80,000 management compensation,” Ferguson says. "A $100,000 operation, on the other hand, needs to expand or get additional funds elsewhere.”

2. Total Labor Costs. These are about 8% to 9% of annual sales. "Payroll taxes, vacations, housing, bonuses and so on should be included. Operations with total sales of $500,000 should have no difficulty.” Labor includes any person who does not participate in ownership, planning or supervisory responsibilities, as well as custom hire payments.

3. Sales-to-Labor Ratios. Grain farms should have $12 to $14 in sales for each $1 of labor cost (7% to 8% of total sales) to ensure they are efficient in labor. Confinement livestock operations should have ratios in the $16 to $20 sales range (5% to 6.25% of total sales), Ferguson says. "Small operations might want to combine management and labor costs, in which case it should total 12% to 16% of total sales, providing a $6 to $8.50 ratio.”

 

 
You can e-mail Linda Smith at lsmith@farmjournal.com.

See Comments

RELATED TOPICS: News, MoneyWise

 
Log In or Sign Up to comment

COMMENTS

No comments have been posted



Name:

Comments:

Receive the latest news, information and commentary customized for you. Sign up to receive the AgWeb Daily eNewsletter today!.

 
 
Enter Zip Code below to view live local results:
bayer
 
 
The Home Page of Agriculture
© 2014 Farm Journal, Inc. All Rights Reserved|Web site design and development by AmericanEagle.com|Site Map|Privacy Policy|Terms & Conditions