Tag Archives: money

What Is Sweat Worth?

What Is Sweat Worth?  By Dave Pratt, owner of Ranch Management Consultants

 

What is Sweat Worth?

by Dave Pratt

Most family ranches are subsidized with free, or underpaid, family labor. Sometimes the difference between what family members get and what it would cost to hire someone else to do the work they do is made up with the promise or expectation of sweat equity. But sweat is not a recognized form of currency and people counting on sweat equity usually have a grossly exaggerated idea of what their sweat is worth. This often leads to serious disagreement and disappointment.

If you are going to count on sweat equity and want to avoid the inevitable misunderstandings that happen when it comes time to cash in on your sweat, then you’d better start actually counting it. How many hours? For how many years? At what rate of pay? With what interest on the unpaid balance?

I mentioned the perils of relying on sweat equity in a workshop recently. I suggested we stop using the term sweat equity and call it what it really is, “deferred wages.” My comments apparently struck a nerve with one 30-something rancher. He approached me after the program and asked if I could help him calculate what his sweat was actually worth. He said that he’d come back to the family ranch after college 10 years earlier. He’d been drawing a low wage and banking on sweat equity. As is usually the case in family ranches, there was no formal agreement documenting exactly what his sweat was worth.

He was being paid $25,000 a year, but his compensation package included a nice home, a vehicle and insurance for his family. All-in-all a compensation package worth well over $50,000. “Maybe I’m not as underpaid a I thought I was,” he said.

I suspect that he was probably being underpaid somewhere between $10,000 to $20,000 a year. I showed him that for every $10,000 he’d been underpaid, he earned 0.1% equity in his family’s $10,000,000 ranch.

($10,000 ÷ $10,000,000) x 100 = 0.1%

I showed him that over the previous 10 years, compounding interest at a rate of 3.5%, he’d earned a whopping 1.2% equity stake in the ranch. Like a lot of young ranchers returning home, he hadn’t ever thought about how much his sweat was worth but had assumed that it would add up to a lot more than that.

Sometimes sweat equity isn’t just about compensating someone for the work they do. It’s about acknowledging the sacrifices someone may have made, foregoing other opportunities to come back to the ranch to support the family. If there are several kids in your family, but only one has invested time and energy working on the place and has shown a desire to continue the business, it may be fair to give them an equity position.  After-all, as succession planning advisor Don Jonovic points out, fair doesn’t necessarily mean equal.

But whether sweat equity is a substitute for a paycheck or acknowledging a sacrifice, we need to be clear about what we are compensating and its value. We need to convert assumptions and expectations into agreements. We need to figure out what our labor is worth (the topic of the last ProfitTips column). We need to document the value of our sweat while we are still sweating.

For more on documenting the value of sweat equity watch the video below:

What is Sweat Worth? youtube video

Ranching for Profit

I always chuckle a bit when i type out ‘ranching for profit’ because it’s almost an oxymoron!  Yet, David Pratt, owner of Ranch Management Consultants and Ranching for Profit instructor, contends that there is such a beast if we ranchers use sound financial and economic principles.

Mr Pratt’s most recent blog discusses using debt properly.  Now, okay, my mind goes immediately to the song, ‘Neither a borrower, nor a lender be.  Do not forget, stay out of debt.’  Which then led me to wonder where that came from.  I knew it was from Shakespeare’s ‘Hamlet’ (Polonius counsels his son, Laertes in Act-I, Scene-III of William Shakespeare’s play, Hamlet by saying, “Neither a borrower nor a lender be; / For loan oft loses both itself and friend.”  But what about the tune?

Completely surprised when i discovered that it was created and made famous on the TV sitcom, Gilligan’s Island, which i watched religiously when i was young.  SO FUNNY!  It is sung to the tune of the Toreador Song in Bizet’s Carmen.

The Bible also has advice on debt and teaches us to guard against being in debt, likening it to slavery and bondage.  However, debt does not seem to be a sin, but a tool to earn money wisely, but counting the cost before taking on the burden.

May 9, 2018
ProfitTips
from the Ranching for Profit School
A lot of people tell me that they want to be “debt free.” They are tired of making big interest payments on land, livestock, machinery and their operating note. They have had too many sleepless nights worrying about making the next payment. They believe that if they didn’t have to borrow money they would be more profitable and financially secure.
But the proper use of debt makes us more profitable, not less. And being debt free doesn’t make us financially secure. In fact, for most of us, short of winning the lottery, the appropriate use of debt is our only realistic path to financial security.
The problem isn’t debt, it’s our misuse of debt. The two most common ways we misuse debt are:
  1. We put finance first and economics a distant second
  2. We use debt on the wrong things.
Using debt effectively begins with understanding the difference between economics and finance. It boils down to this: In economics we ask, “Is this profitable?” In finance we ask, “Can I afford to do it?” If we are going to be smart about our use of debt, economics must come first. If it isn’t profitable you don’t have to worry about how you’ll pay for it, because you shouldn’t do it in the first place.
Smart Debt
Economics vs Finance
When RFP grads evaluate the profitability of a livestock enterprise they include opportunity interest on the herd as a direct cost in the calculation. If the enterprise has a healthy gross margin it tells us that borrowing money to expand the herd will increase profit. If we haven’t included opportunity interest in our calculation we can’t be sure if expanding the herd is a good idea.
Opportunity Costs
The other problem is that people use debt on the wrong things. There are two primary places where we put money in our businesses: fixed assets and working capital. Simply put, fixed assets are things we intend to keep (e.g. land, cows, infrastructure, vehicles, equipment). Working capital is the money tied up in things we intend to sell (e.g. calves). Most of us have most of our money invested in fixed assets. This is the biggest financial problem in agriculture. It’s a problem because when most of our money is tied up in things we intend to keep, we have relatively little to sell and generate very little income relative to the value of our assets. Making matters worse, a lot of the income that we do create gets spent maintaining the fixed assets. That’s why most ranchers are wealthy on their balance sheet and broke in their bank account.
Borrowing to buy fixed assets may be a smart long-term investment strategy, but it might cause you to go belly-up in the short term. We’d be better off to use debt to buy assets that directly produce income.
We shouldn’t be afraid to borrow money, provided the economics of our enterprise is rock-solid and we use the borrowed money to buy income producing assets.
2018 – 2019 School Schedule
Sept. 9-15, 2018
Boise, ID
at Holiday Inn Express
Dec. 2-8, 2018
Abilene, TX
at MCM Elegante Suites
Jan. 6-12, 2019
Colorado Springs, CO
at Radisson
Jan. 13-19, 2019
Billings, MT
at Billings Hotel
Jan. 20-26, 2019
Rapid City, SD
at Best Western Ramkota

Tidiness Tips

  1. Make your bed, hang up your clothes, shut closet door, drawers, straighten rug
  2. If you take it out, put it away – where it belongs!
  3. If you make a mess – clean it up.
  4. When you get out of the car – take all your stuff and rubbish with you.
  5. Deal with paper that comes into your house daily – mostly rubbish usually – which means deep six it immediately – no piling.
  6. Wash the dishes, let dry, put them away along with the drain rack.  Clean and shine sink/faucet/handles.
  7. Clear and wipe counters, sinks, back splash, faucets every day.  Just takes a moment – just do it.
  8. Keep laundry current – when hamper is full – wash the clothes, dry or hang them to dry.  Fold them and put away.  Consider washing a load everyday.
  9. Throw away things that don’t work, give away or sell things you don’t use.
  10. Some tasks simply take time and need doing at least once a week.  Cleaning showers, bathtubs, toilets, vacuuming or washing floors, dusting ceilings, washing walls, windows, sills.  Some prefer scheduling the same time each week to do all or choose one or more to do each day until it’s all done.
  11. Consider carefully whether or not you need more storage units or shelves vs just getting rid of extra stuff.  Less stuff; less to clean.

 

Benefits:

  1. Company can drop in and you won’t be embarrassed or feel the need to apologise for filth.
  2. Having to unload papers and junk from a chair to allow a guest to be seated or clearing papers from the dining table or washing it off before serving puts your guests at odds with feeling welcome – already they feel guilty for causing you extra work on their behalf.
  3. Clean and organised eliminates the stress caused by a chaotic environment.
  4. Putting things away saves time in looking for ‘lost’ items.  “A place for everything and everything in its place.”
  5. Cleaning and keeping things clean often increases its useful life in addition to it looking nice during its life in your home or property.
  6. Being clutter free and organised saves time/money/health.

 

IMG-3891
I’m not a fan of buying shelving or other storage units – usually that just means i’ve got too much stuff.  However, when renovating our old house and enduring NO shelves in the lower cupboards, after 3 years, i finally relented to purchasing this nice inexpensive unit and now, finding stuff is oh such joy!  This is actually called a 2-tier shoe rack, but works perfectly in this space for my needs.  

What are your tips for keeping your house, job, and life neat and tidy?  What are your challenges?

Cheers!

tauna

 

Getting Into the Cattle Business: Buying a Ranch and Making it Pay

Solid figures to help me decide whether or not to pursue any land purchases should any come up for sale. Farms in Linn County, MO rarely change hands.

Land & Livestock International, Inc.

By Dr. Jimmy T (Gunny) LaBaume, President & CEO, Land & Livestock International, Inc.

What and Why?

First, do you want to own a ranch or do you just want to be in the cattle business? Did you know that you can enter the cattle business without owning either land or cattle?

"Waiting for a Chinnook" Also known ...
“Waiting for a Chinnook” Also known as “Last of the 5000”

You are already thinking, “This guy has lost his mind!” But seriously, you can. You can lease land and take in pasture cattle–i.e. you can pasture someone else’s cattle on leased land for a monthly per head fee. Once you get a reputation for paying your bills and taking good care of other peoples land, ranch lease opportunities will come to you. You won’t have to look for them.

This is an excellent way for young prospective ranchers to get into the business without having to…

View original post 2,118 more words

Time Management Lesson

Too many times I engage in projects which end up as time wasted. Case in point this 12×12 chicken tractor. After spending time and money on it, I’m now faced with more time wasted disassembling it. I have no intention of raising layers on pasture again and it’s too awkward to move very far and a waste of space to store it. The high quality tarp from Troyer Tarp will be stored, however, since it is a $100 item. I’m learning, albeit slowly and with the wisdom my children bestow upon me, to utilize my time more wisely.

Cheers!

tauna

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Keeping Records

Yeah, i’ve harped before about keeping good records and tracking expenditures and income, but when i hear the same people complain about having no money to pay bills, yet when asked if they keep records, they say ‘no,’ it causes me to wonder if they just want to complain, don’t have any idea of where their money is being spent, or perhaps don’t want to know.  But, like anything, if one doesn’t make improvements, then you’ll always be able to complain about something and that is stressful.

Here’s a short article i stumbled upon.  “Make a Personal Budget and Keep Track of Spending

It’s imperative and so easy to keep track of expenses.  Most can simply use a notebook and pencil.  Even easier is to have a calculator in the mix. (Coffee optional)  Write down the amount or ask for a receipt when you stop by the coffeeshop for a latte.  Picking up a soda from a vending machine – well, you’ll have to write it down.  Whatever you need to do, keep track of even the smallest expenditure and categorise it.  THEN, you can make decisions to change and improve your financial situations.  Reimburse your cash expenditures by writing a check to maintain your petty cash stash.  Sure, you can take cash out of your paycheck each month, but it makes it more real when you have to write a check.  Keep your petty cash in balance.

This can be applied to businesses as well, but managing one’s household and personal expenses is the first step.  Personal finance record keeping should begin in the preteen years – as soon as you earn or spend money.

Cheers!

tauna

FSA Microloans

This might be a good place to look if you need to borrow funds for a small farming or marketing operation startup.

Contact your local FSA (Farm Service Agency) office if interested in a USDA microloan that can help new farmers own land. http://www.fsa.usda.gov/…/farm-loan-progra…/microloans/index

Program Description:

The focus of Microloans is on the financing needs of small, beginning farmer, niche and non-traditional farm operations, such as truck farms, farms participating in direct marketing and sales such as farmers’ markets, CSA’s (Community Supported Agriculture), restaurants and grocery stores, or those using hydroponic, aquaponic, organic and vertical growing methods. 

Cheers!

tauna