Fall is Planning Time
As fall work wraps up for most in cow country, now is the time to start planning for next year. Here are a few essential pieces of that plan:
- Gross Margin projections and analysis of key enterprises
- Overhead projection and analysis
- Profit target setting and how profit will be used
- Grazing plan for next year
This list isn’t exhaustive, there are a lot of things that could be added. At a minimum, this list should make for some productive WOTB (Working On the Business) meetings this fall and early winter. If you don’t feel equipped to dive into these topics you are not alone. Most ranches don’t do these essential planning pieces. Most ranchers don’t know how to run a gross margin and wouldn’t know what it means if they did one. Most ranches are also making an economic loss almost every year. Most ranches are ranching for hobby, not ranching for profit. Eventually people get tired of the expensive hobby and the ranch will cease to exist. Not knowing how to do WOTB doesn’t excuse the fact that it needs to be done. If you’re not evaluating your business annually, maybe it is time to figure out how to do it.
We recommend fall as the time to do your economic projections because following fall work, you should have inventory numbers of each class of animal. In the fall, there are also plenty of opportunities to make changes to the plan and to fix problems you may find. Let’s say you do your gross margins on your cows and you find the number disappointing. Maybe your gross margin ratio is 45%, way short of the benchmark of 70% or better. The next step is to dissect the gross margin to see if the problem lies on the gross product (value of production) side or the direct costs side, like two branches of a tree. Using the tools we teach at the Ranching for Profit School, you can figure out, on which of these branches of the tree lies the problem. Then you can identify the deadwood and get to work developing strategies to fix them. It is empowering to be able to name the issue.
Maybe your gross margin is good, and overheads are too high. If overheads are high, we can cut overheads or find ways to produce more gross margin to cover them and hit our profit target. For many ranches, overhead costs that have expanded overtime make this the leading cause of unprofitable ranching businesses. Often too many people and things (equipment) are trying to be supported by too small of a business. There are ways to fix this problem but the approach will be unique to your ranch and will take courage to implement.
We will leave the topics of setting profit targets and grazing planning for another ProfitTips, but know these steps are critical to moving the business forward.
I hope you have the discipline to lead your business through these important planning issues this fall. The freedom and excitement that comes with identifying deadwood and developing strategies for change is one of the most rewarding aspects of farming/ranching. We would love to play a role in helping you lead your business into the future. We hope to see you in a school this fall.