Tag Archives: Ranch Management Consultants

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

The Three Secrets for Increasing Profits

Farmers and Ranchers seldom spend time WOTB, but now that it is too hot outside to be working in the business (WITB)  cutting trees, spraying brush, etc, now it’s time to sit back and listen to David Pratt, owner of Ranch Management Consultants, and the dvd i just received entitled, “The Three Secrets for Increasing Profits” and begin WOTB.  (Working On the Business).

Happy 4th of July!!!  be safe out there!

Cheers

tauna

“If our farms are not fun, not profitable, or are too much work, our children won’t want them…. Romancing the next generation is the ultimate test of sustainability.” Joel Salatin, Polyface Farms

A Great Place To Raise A Family by Dave Pratt

Dave Pratt, owner of Ranch Management Consultants (formerly known as Ranching for Profit) hits it on the head again with another great blog entry.  Although his niche is specifically ranching, the ideas he shares are often for any business.

 

Home > A Great Place To Raise A Family

A Great Place To Raise A Family

I occasionally lead workshops I call Hard Work and Harmony: Effective Relationships In Family Businesses. In it I like to ask participants to explain to the person next to them why they ranch.  Some say they love being their own boss, or love working outdoors and with livestock. Almost all of them say something about loving the lifestyle. Near the top of most people’s lists is, “It’s a great place to raise a family.”

I agree. I grew up on a small place. The biology lessons I learned from tending livestock were more influential than any I ever had in a classroom.  I learned other lessons too. I learned how to work hard and how to be resourceful. But it wasn’t just about work. Our place was a great setting for any adventure my imagination could conjure up. My mom sold it when I was in college and it just about broke my heart.

A ranch can be a great place to raise a family, but it isn’t always. I worked with a rancher shortly after my son, Jack, was born.  When we broke for lunch he asked about my new baby. I told him that when they placed Jack in Kathy’s arms for the first time, I could hardly see him for the tears of joy streaming down my face.  Tears welled up in his eyes too, but they weren’t tears of joy. Trying to hold back a flood of emotion, he told me how he had worked sun up to sun down to build a place “for the generations to come.”  He said that he hadn’t been as involved in his children’s lives as he should have been. As we sat on the hill, he told me that now he rarely hears from his adult children, who want no part of the ranch. A ranch can be a great place to raise a family, but it is not a substitute for our active involvement in family life.

Many ranchers are addicted to work. I’ll bet you’ve even heard some of your colleagues brag about how long and hard they work, proudly proclaiming things like, “I haven’t taken a vacation in 20 years.” They say it as though it is something to be proud of.  When I hear things like that I shake my head wondering, “Are things that bad?” You can’t run a sustainable business on unsustainable effort.

Intentional or not, work can become an excuse to avoid working through the issues every healthy family faces at one point or another.  When work consistently takes precedence over family needs, we set ourselves and our families up for trouble. Engaging in what may be uncomfortable conversations when issues first come up can keep them from growing into big problems.

In the last few months I’ve met a number of people who are learning that lesson the hard way. After decades of avoiding uncomfortable family issues they are facing extremely difficult challenges regarding succession.  Now, without any experience working with one another to resolve small issues, they are hoping to work through the most difficult challenges many of us will ever face. The conversations are made even more difficult because of the hurts that have gone untended and the resentments that have grown from not taking care of the family in the family business.   It’s a tough way to learn that success has more to do with healthy relationships than with conception rates and balance sheets.

I don’t mean to suggest that the physically demanding work that ranches require can be ignored, but it doesn’t have to be all consuming. Many Ranching For Profit School alumni have discovered that the ranch was all consuming only because they allowed it to be that way. After the school they restructured the business to increase profit and liberate their time to put more life in their work/life balance. They still work as hard as anyone, just not as long. Their ranches are great places to raise their families, andthey actually take the time and make the effort to be directly involved in raising them.

To hear how one RFP alumnus decreased the work required to run their ranch while increasing profit and improving their quality of life, click here.