ProfitTips is taking a different direction this time. Aaron and Tara Helmick recently shared with me a collection of “Lessons Learned” from the past 4 years as they have been on a journey to transform their business. I met Aaron and Tara at a Ranching for Profit School I taught in Rapid City, SD. Aaron and Tara brought a different perspective to the school as they came from a dairy operation in West Virginia. At the school their classmates quickly grew to appreciate Aaron and Tara’s wit, experience and insights. They attended the school when dairy businesses were going through a tough time, and when putting their numbers together they started to chart a new direction away from dairy. Aaron and Tara quickly joined the Executive Link program and set an aggressive course of self improvement, realigning their business to meet their family goals. The following are comments they shared with Wally Olson (teacher of Bud Williams Marketing), Dave Pratt, and myself. I have found value in these lessons and I hope you will too.
Sell/Buy, Value of Gain lessons from Aaron and Tara
We wanted to share some lessons that we have learned in hopes that, maybe they will help somebody else.
1.Chalk your own field. Geographically, socially, mentally, physically, we all have different abilities. When starting to sell/buy, reading Doug Ferguson, and speaking with others; it seemed like most were finding opportunities with stockers. There are for sure opportunities there! But for us it didn’t feel right and we weren’t running stockers because they didn’t line up with our vision and mission, or our small children. One day after leaving an Executive Link conversation, it hit me, what if we flipped a SWOT analysis and made our weaknesses and threats, the opportunities. We then started seeing that there were trades that came together “organically”, and if it wasn’t a definite yes, it was a definite no. Talking with Wally, he confirmed that if you have to force the trade, and it doesn’t come easily you should leave it.
2.Know your cost of gain, at all times, on all classes or the species you’re trading.
3.Know VALUE of gain, thanks Dave!
4.Money is in change not weight. The real money, (100 to 1000+) dollar an hour stuff isn’t in weight gain. Let’s face it, weight gain is production, and most farmers and ranchers (franchers) are in the commodity (meant to break even or worse) business. Zero sum game! However, to see nice profits you have to change an animal into what it currently is not. Examples: opens to breds, breds to pairs, culls to market. That’s not saying not to look at weight gain, it helps pay the bills, and can be profitable. As a local timber harvester put it, “you can make a living cutting pulpwood (weight gain) or you can make money with saw logs (changing class).” Wally thanks again!
5.There are great trades available “in the country” and at dispersals. We are in the people business, get to know those people, and tell them your story. A lot of people will work with you, because they identify with, or want to help you. They may even like that they can sell everything at one time, to one buyer and that becomes your edge.
6.Sale Barns: Some people love auctions, some it makes them physically ill! I am the latter! Please, if you are in this group, don’t overlook sale barns. For me, I had to go, nausea and all, for about 6 weeks, until I was comfortable enough to look up, focus and see what was really going on and how it could help our business. Fear is a liar. Growth happens outside the comfort zone.
7.Sell/buy is very doable for startups with little to no land and little cash!
8.% return: For us starting up to sell/buy, the goal was to increase turnover and % return in a short amount of time. We like trades that we can execute in 90 days or less. Our cattle trades offer a lower rate of return than small ruminants thus far, also we are exposing a lot more cash on cattle trades.
9.Wally’s depreciation, the huge take home from this for us was understanding appreciation (value going up – think heifer calf becoming a bred heifer)! You can’t have depreciation until you have appreciation. My 10 and 7 year old children recite this, I think it’s that important.
10.TODAY: Today is the only day you can manage; today is the only day you can market. Focus your market attention on that particular day. We sometimes focus so far into the future we miss opportunities, and more importantly blessings.
11.The buy, after the SELL. Wally saved me here. We made a nice sell, and the principle tells you to buy back in the same market. Only that day, that week, there was just not an attractive buy. His answer… YOU CAN JUST HAVE MONEY, referring me back to the triangle. (The triangle of inventory of grass, money or livestock – reference Bud Williams Marketing) You need money and grass, you don’t have to have the stock.
12.Asset and Liabilities: I have always struggled at the end of the year, when the accountant or consultant says “Wow, you did great!” I reply, “Great, where is the money?” This lesson is new and started in Gabe Brown’s book, Dirt to Soil, there is a quote “to make small changes you have to do things differently, to make big changes you have to see things differently”. How does this apply to a balance sheet? Enter Robert Kiyosaki and the cashflow quadrant. In this book, simply put we redefine assets and liabilities. An asset is something that puts money in your pocket! A liability is something that takes money out of your pocket! Now give your balance sheet another look, take a moment and go vomit somewhere thinking about all the things taking money out of your pocket. All of my children who can speak can recite the proper definition of an asset and a liability. The point here is that a lot of the livestock on a balance sheet, might not really be an asset, and should be traded.
13.Read Knowledge Rich Ranching by Allan Nation, thanks Logan.
14.Marketing: This one for me was drastically overlooked and has multiple parts. I was in the dairy business, no marketing, they pay you a predetermined price and charge you for everything involved. We have learned the following, which may be common to other folks, or is it?
Marketing generates some of our largest returns and is not something that comes easy to me (greater than $1,000 an hour). Burke Teichart mentioned in episode 100 of Working Cows podcast, you have to market a little better than someone else…how do we apply that?
Manage shrink, or shrink will manage you! Shrink doesn’t seem to generate much conversation; I am not sure why. It’s the parasite that shows up on a trade that can be quite significant if not managed. Don’t ship in the rain, don’t handle and sort a bunch before load out, practice good stockmanship. Gordon Hazard’s book, Thoughts and Advice from an Old Cattleman, will talk more about this. We sold a load of lambs that shrunk 18%, we average 2.5 to 0% now.
Manage fees. I was surprised at what marketing fees cost, and how much they are at a sale barn or a brokered sale. Sometimes they are worth it. Most of the time, you, yourself can do just as good or better a job and “capture” these fees for yourself.
Package, or un package…. depends on where you live. In the east we think a lot about putting loads of cattle together to ship west (with negative basis I might add) and that’s ok, that’s how it is. Two lessons, learn to package and make consistent and accurate loads, or we have found it rewarding to buy loads and un -package them. My list of clients grows, when I am willing to sell 10, 11, or 300. Of course, we charge a pain in the — tax for smaller numbers. Finally be honest and represent stock accurately, or under promise, over deliver.
15.Ego, coffee shop, belt buckles: We all get paid on a NET basis, not a gross basis. Manage the net, quit talking about the gross. The gross is never the amount that hits my bank account!
16.We own nothing, we are borrowing or stewarding our resources from God, our creator. The best decisions come from dirty knees, not standing tall. Thank you God for people willing to help me, thanks or sending them, and Dallas thanks for implanting “we are in the people business”. Proverbs 27.17