So what is this tour i’m on? and why? For one, Chile and Argentina have long been on my bucket list and what better time to go than with other travelers interested in livestock, soil, grass, water, and community improvement!
Several years ago, a short sample of holistic management resources was offered at FSRC and it made some good sense, but mostly we adopted the grazing management bits which Jim Gerrish taught and left the rest. Oh, well, i do use the testing decisions to some extent. My questions, however, tend to be, will it pencil? and can a child do it?
Short history is that Stan Parsons and Allan Savory teamed up to start Ranching for Profit. For whatever reason, they split and Stan continued Ranching for Profit (now called Ranch Management Consultants) and Allan started Holistic Management Resources (now called Holistic Management International). then a few years back, Allan left HMI and started Savory Institute which now answers to Savory Global.
You may not agree with every precept promoted by Ranch Management Consultants (Ranching for Profit) or those of any expert in the ranch/farm management or sustainable/regenerative camp, but fundamental thoughts work for nearly any endeavor.
TRANSFORMINGyour business BEGINS WITH TRANSFORMINGyourself
Transforming your ranch into an effective business involves changes in land management, animal husbandry, money management and in the way you interact with the people in your business. But the biggest change isn’t to the land or the animals. The biggest change is in you.
IT ISN’T SUSTAINABLE if it isn’t PROFITABLE
Profit is to business as breathing is to life. A ranch that doesn’t produce an economic profit isn’t a business. It’s a hobby … an expensive hobby.
FOCUS ON effectiveness NOT EFFICIENCY
Efficiency and effectiveness are not the same thing. It doesn’t do any good to do things right if you are doing the wrong things! If something is efficient, but not effective, stop it immediately!
GET IN SYNCH with nature
Most ranch businesses are structured to fight nature. That’s expensive and exhausting. Businesses that match enterprises and production schedules to nature’s cycles are more profitable, less work and more fun!
YOU DON’T GETharmony WHEN EVERYONE SINGS THE SAME NOTE
In any business, especially family businesses, there are bound to be differences of opinion. Our decisions are improved when we bring different perspectives and ideas to the table and engage in constructive debate, as long as we agree that, at the end of the day, we all ride for the brand.
WORK LESS and make more
Unsustainable effort is unsustainable. Period! Planning is the key to simplifying enterprises, increasing profit and reducing labor.
RANCHING is abusiness
We often act as though we have a choice between ranching as a lifestyle or a business. The lifestyle of ranching improves when the ranch is a successful business first.
WORK ON YOUR BUSINESS two mornings a week
It’s not enough to work IN your business, you must work ON your business.
WEALTHYon the balance sheet & BROKE AT THE BANK
The misallocation of capital is the biggest financial problem in ranching. At the Ranching For Profit School you’ll learn how to capitalize and concessionize assets to increase profit and improve the financial health of your business.
RANCHING FOR PROFIT is NOT an oxymoron
Many ranchers seem to think that profit is dictated by prices and weather…two things beyond our direct control. Ranching for Profit graduates prove every year that the key to profit is management.
Top 5 Business Management Actions on the Farm/Ranch
by Dallas Mount
As we wrap up 2019, I want to share with you what comes to the top of my mind as actions that farms and ranches take when they are serious about their business management. If you are hitting the mark on these, well done! If not, then what will your strategy be to improve in 2020?
1.Effective Communication –
Have regular WITB (operational) meetings and WOTB (strategic) meetings. For WITB they should be brief, focused and end with something written down in a visible spot, listing who is doing what by when. For WOTB meetings they need to be focused with limited distractions, allow for creative thought, be inclusive and also end with an action plan.
2.Clear Roles and Accountability –
Are all the roles of your business being filled? Is ownership clearly setting the mission and vision? Is management developing plans that include strategies with contingencies and communicating those to everybody? Is labor effectively balancing all the duties and working with the end in mind? Most farms and ranches are owned and labored while few are effectively managed.
3.Plans Developed and Communicated –
Does your business have the following plans written down: Economic plan showing the projected profit for the coming year. Financial plan which shows the projected cash flow for the coming year. Grazing plan that shows where the animals will be, for how long, planned rest periods and planned stocking rate. Disaster plan for drought, fire, blizzards, or floods. Organization structure listing who is responsible for each aspect of the business.
4.Professional Development – What is the plan for the coming year? What areas does the business need training in? Each key person should develop their own professional development plan for the coming year and get buy-in from the business leadership.
5.Healthy Balance of Work and Life – If you are spending all your time putting out fires in the business something has to change. Sure, we all go through periods of super-human effort, but if this is the norm it isn’t sustainable. If you want different results, you must take different actions.
From all of us at RMC, thank you for your support over this past year. We are so blessed to get to work with some of the best people in the world who are taking care of God’s creation and feeding the people.
I know I promote Dave Pratt and his Ranching for Profit video blogs a lot and, even though i don’t agree with him on many points, there are a lot of good points he eloquently describes which are applicable to any business – not only ranching.
I’ve ’bout got my hobby farm to the ‘old, stupid, and lazy’ stage, but gracious, how could i attract anyone to cover for me if they thought i was needing someone old, stupid, and lazy ?
Look up the definition of asset in Webster and it’ll tell you an asset is “anything owned that has value.” But Webster has it wrong. If I put a down payment on a ranch, financing the balance, the full value of the land shows up in the asset column of my balance sheet, but I don’t own the whole ranch. The bank probably owns more of it than I do. No, an asset isn’t necessarily something you own. An asset is something you have. Your net worth (Assets-Liabilities) is what you actually own.
Although your banker would disagree, there is a completely different way to define assets. In his best seller, Rich Dad, Poor Dad, Robert Kiyosaki defines assets as “things that put money in your pocket” and liabilities as “things that take money out of your pocket.” Between monthly principle payments, interest, insurance, maintenance and repairs, most of the things your banker calls assets are, according to Kiyosaki, really liabilities.
Ironically, the fancy cars and homes that we see as the trappings of wealth are actually huge constraints to generating wealth. That doesn’t mean we can’t enjoy the finer things in life, but until we build a wealth generating machine as our foundation, buying “liabilities” will slow, and may block, our ability to create wealth.
There is an even bigger problem with assets.
In the final chapter of his wonderful book, Nourishment,Fred Provenza writes about taking a sabbatical to Australia with his family. To finance the trip he needed to sell their home in Utah. He explains that he didn’t build the house himself, but had done a lot of work on it and had “a lot of skin in the game.” Unfortunately, at the time of the sale the housing market was very depressed and, while they got their investment back, they didn’t get much more. Between the time of the sale and their trip to Australia, they rented a smaller house Fred called “the dump.” At first he was resentful of having to give up owning his “castle.” But after a couple of weeks in the dump he began to realize that he hadn’t owned the house he’d helped build. He explained, “It owned me.” It owned him financially, requiring huge monthly payments. Even after the sale, it owned him emotionally.
Assets can clutter our space and minds, causing distractions and stress. They make it more difficult to clean and organize. They tie us down. The biggest constraint to moving for some of us is the burden of taking all of our stuff with us.
The things we own trap us. I recently had lunch with a couple who’d been ranching for about 10 years. They both worked off-farm to make ends meet. Over the last several years they’d bought a small place, secured several leases, and built up a herd of a couple hundred cows. But now, with a young family, significant debt and the off-farm jobs, they seemed stuck.
After subtracting the liabilities from their “assets” their net worth came to $1,300,000. On the back of a napkin I wrote them a “check” for $1.3 million and asked them, “If you had nothing but this check and the clothes on your back, and still wanted to achieve your dream, would you use this money to recreate the situation you are in? If not, how would you deploy this money to accelerate progress toward your dream?”
Their expression changed almost immediately. While they’d made progress over the last 10 years, the business they created was going to make it difficult if not impossible to achieve their dream. Rather than a stepping stone, their operation had become an obstacle to further progress. They set out to use the wealth they’d created to change their course.
I went through the identical exercise with another couple whose net worth was closer to $3 million. When I asked if they would recreate the situation they were in, they immediately and in unison said, “No.” But, when I met with them again a year later, they hadn’t changed anything and resigned themselves to “staying the course.” Rather than using the assets they owned to create the lives they dreamed of, they were owned by their assets, which they used as an excuse to stay stuck. Chuck Palahniuk, author of Fight Club, described it perfectly when he wrote, “The things you own end up owning you. It’s only after you lose everything that you’re free to do anything.”
Listen to New England Executive Link member, Pat McNiff, explain the cost of keeping assets and the process they used to determine what they needed to keep and what to discard or sell.
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 lastProfitTips 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:
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
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:
We put finance first and economics a distant second
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.
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.
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.