Mission Before Profit
Successful businesses have mission and vision statements. This allows planning and decision making easier for managers and owners. These statements are posted on websites, above the front door, and in the break room to keep reminding us why we are there, and why the customers are there too. The mission is the purpose of the business including customer value, core principles, and owner value. The vision is the plan of how to achieve those three items. These statements are not written in stone, as businesses mature and evolve with time, these statements need to be monitored and adjusted as the world changes around us. Once we know why we are in business, then it is time to discuss profits.
Profit targets are extremely useful planning tools. And let’s get one thing straight, I am not talking about “profiting from an experience,” we are talking about generating value and putting money in the bank. So what is profit? The simple term is revenue minus expense, then profit is the leftovers. At the Ranching for Profit School, we use the terms gross product and costs because there are non-cash transactions that need to be considered too.
The two biggest non-cash transactions are opportunity rent and operator labor.
- Opportunity rent is charging for the use of owned land. Even if the land is paid off, it is important to charge a rental cost. When opportunities present themselves to rent or buy more land, the business has an economic model to pursue those opportunities.
- Operator labor is pretty self-explanatory; you need to charge the business what your work is worth. Let’s be honest, if you work for nothing your whole life, that is a pretty close estimate of what you will end up with when you retire: nothing. That is if you ever get to retire. Also be realistic with family living expenses, most people are surprised what it truly takes to run a household and what the ranch may be providing. Here is a link to KFMA’s family living report, other farm business management programs have similar numbers.
In order to build a profitable business that pays fair rents, decent wages, and has a profit; we need to go back to the mission and vision. During our school it can get pretty cliche for us as instructors to keep asking “What does your mission and vision say about it?” Let’s pick on a cow-calf ranch in the Wyoming mountains. Economics alone might say: year round cow herds are not the right thing to do here, with snow up to your eyeballs for several months. If the rancher is really unsettled with that answer, we need to go back to their mission and vision statements. If owning and running a cow-calf operation is really important to that rancher, they will need to figure out how to make it work economically, ecologically, and without working 80 hours a week.
Once the business is rolling and fun to work in, then we can aim for whatever profit we want. It is easy to compare running a business to driving a vehicle down the road. The profit target is the destination we are driving to. Without a destination, the vehicle goes nowhere. Without a mission and vision, the vehicle might not even start. Our winter Ranching for Profit schools are almost done, but we do have a few spring and summer schools we’d love to see you in!