The Power of a Plan
We are currently in a time of financial stress in agriculture. The past few months, as we have been conducting our Ranching for Profit Schools all over the U.S. the stress has been palpable from many of the operations that are attending. The hands-on afterhours work sessions we facilitate at the school have been busy. I deeply respect those operators who are willing to have the hard conversations and explore options for fixing their businesses. If your business is feeling the stress it is time to take off your work gloves, take off your coverall and go to work! Not working-in the business, but working-on the business. There is a solution for the situation you are in, but the answer is not in saving one more calf at calving or growing one more bushel per acre but in structuring your business to be successful.
However, you must put the numbers together in a way that makes sense. Your tax accounting report is not the same thing as an economic analysis that breaks the business down by enterprises. At RMC this is what we do! We have been doing this for over 35 years and we know how to help you figure out your numbers.
Allan Crockett and I recently held an Economics Planning Workshop in Tucson, AZ. There were about 20 people in the two-day workshop, who spent the time intensely focused on figuring out their plan for the coming year. They started by putting together economic projections of their business using the Ranching for Profit Economic Model.
They separated enterprises, created divisions (when appropriate), then calculated Gross Product and Gross Margin from each enterprise. The Gross Margin represents the contribution to Overheads and Profit that each enterprise makes and provides a convenient way to compare relative performance of each enterprise in the business. Divisional overheads and business overheads were then figured, which allowed total business profit or loss to be calculated. When each business had their numbers, they wrote them on a piece of flip chart paper, posted them on the wall and then the fun part began. Some were on track or very close to meeting their targets, others needed to revise the plan significantly. Because we were working with projections for the coming year, when we don’t like the numbers, we have the opportunity to make changes.
Each business then calculated how their numbers compared to the RMC benchmarks to identify which branches of their business were healthy and where “the deadwood” was hiding. They then went to work developing strategies to address the weak areas and emphasize the strengths. All of the strategies discussed came down to addressing one of The Three Secrets for Increasing Profit: reduce overhead, improve gross margin per unit or increase turnover. In the last 2 hours of the workshop we asked businesses that were willing, to walk the group through their numbers and discuss the strategies they came up with. Most of the businesses there found strategies that would result in improving profit by $100,000 or more! Not bad for two-days of focused work!
As calving season approaches in most of ranching country it will be tempting to let yourself get caught up in the busyness of it all. If you are feeling financial stress in your business maybe it is time for a change. Maybe it is time to learn how to get a handle on your business economically and get back in the driver’s seat. How long are you going to wait to turn your business around?