The real numbers: an overview of our ranch business

I listen to a myriad of folks on social media, podcasts and YouTube talk all day about the myriad of benefits that producers receive from practicing regenerative agriculture. What people rarely ever talk about are their financials. I don’t know if it’s taboo or what’s stopping them from sharing details about their farm or ranch financials, but it’s vitally important information that new or transitioning farmers and ranchers need. None of it matters if it’s not financially viable and able to scale. I would argue that it’s the number one hurdle for new or transitioning farmers. Agriculture in general is a risky, hard business to be in. How can we convince people to start practicing regenerative agriculture if there is no financial reward at the end of the day? I personally can’t stand it when people walk around preaching this and that about agriculture, but don’t directly address the costs associated with it. The reality is that it’s a lot of hard work for nothing if you can’t pay yourself a living wage and make a sustainable profit.

This blog is the beginning of a multi-part series detailing the intricacies of our overall and enterprise specific financials. I will attempt to disseminate the information to the best of my ability, but if something is confusing or you just simply want to share your perspective please feel free to comment. The numbers look solid, but the reality is that we need to scale our business to continue to be financially secure and viable.

The first big question in regards to financial planning is what software or tools do you use to maintain your financial records? I am simply talking about organizing income and expenses into categories. There are a lot of options these days, but Quicken or Quickbooks are the most common software. This software is designed to import your financial data directly from your financial institution. I don’t necessarily recommend one over the other even though most accountants will tell you that they prefer Quickbooks. Quickbooks is undoubtedly a great tool, but it has a bit of a learning curve and I don’t find it as user friendly as Quicken. The best part about Quicken is that you can organize all of your accounts, personal and business, into one platform. Quickbooks and Quicken both have efficient, user friendly methods for printing reports, which are important for the financial planning process. I honestly believe that anyone managing a ranch, or any business for that fact of the matter, should learn how to do their own bookkeeping and financial planning. If you want to hand off that responsibility to a paid bookkeeper or other employee then by all means do so after you have learned it yourself. One of my clients with Ranch Consulting & Marketing Solutions learned this lesson the hard way. He was at that time a really busy person with irons in way too many fires. He had hired a bookkeeper that had been taking care of his family business for years. This lady wrecked his books, was poorly organized, not transparent with her client and ultimately failed to submit payroll taxes for 5 years. After we straightened out his books and payroll services he received a whopping bill from the Federal government for 5 years of unpaid payroll taxes. Moral of the story folks is learn to do it yourself first and foremost so that at the very least you understand the process and what needs to be done. Should you choose to outsource the work choose someone you trust that has an outstanding reputation.

The second tool that I use in our financial planning process is the financial planning spreadsheet developed by Holistic Management International. This tools was a game changer for our ranch business, Parker Creek Ranch, when we began using it years ago. It was honestly the best thing we have ever done for our ranch business. It allowed us to take all of the financial data from Quicken and organize it into a spreadsheet in such a way that we could plan an entire year (or more if necessary), track the actual income and expenses, and analyze the differences. We began to PLAN FOR A PROFIT. The spreadsheet is like building a budget on steroids. Year after year your plan (budget) starts to align more closely with the actual numbers obtained from month to month. It’s a really beautiful thing when you can analyze cash flow, plan for a profit and optimize costs in such a way. For example, when a set of calves need to be purchased it allows us to know months in advance if or when we will need to borrow against our Line of Credit. Or when we have extra cash to pay down debt or invest into top priorities. We are able to analyze each enterprises expenses and income so that we know where our investments are paying off or not. To put it simply, everyone needs to be doing this. If you don’t have a financial plan how do you know what’s coming in and what’s going out? You might be sinking the farm and not know it.

Ultimately, finding the discipline to sit in your office and do the work is key. You can have the best software and financial planning spreadsheet on Earth, but the numbers don’t work without you. Find a space in your home or elsewhere that is quiet where you can concentrate and do the work. Once you get in the groove it shouldn’t take more than four to five hours to download and reconcile your business accounts, organize them into categories and finally plug those categories into your financial planning spreadsheet. It will be the best four hours you invested into your farm business all month. I make it a point to do it within the first ten days of the following month, otherwise time gets away from us. Mandy, my wife and business partner, make time to sit down and have a one hour meeting just to review the financials for the previous month. We analyze the numbers and make decisions big and small that effect the course of our business.

Throughout our ten years in business I have noticed a few resounding themes in regards to our financials. It is relatively easy to optimize costs for each enterprise whether it’s grass-fed stockers, cow/calf herd or laying hens. Most costs are calculable and there isn’t a lot of variables or unknowns (other than weather and it’s effect on forage availability). What’s difficult to reduce and control is your overhead costs. These are often the largest expenses for any ranching operation. Overheads are costs that typically include land and labor for example, salaries/benefits, rent, insurance, equipment costs, marketing, etc,) Overheads can get out of control really quick and the numbers can sometimes be daunting. Most economists view overheads as so called “fixed” costs. I would argue that these costs aren’t necessarily “fixed.” As a matter of fact, some of them fluctuate a lot such as gas/fuel/oil, equipment repairs, utilities (electric, water) and payroll. Our ranch business grossed right at $300,000 in 2019, which is significantly less than 2018. We made some big changes in 2019, such as getting rid of some enterprises and contracting them out to other producers. What’s really interesting is that even though our gross income was lower, our net income at the end of the year was higher than the previous year, meaning our profit margins increased. To put it simply we became more efficient. Our overheads in 2019 accounted for just 34% of our expenses. The plan for 2020 is to reduce overheads by 10%, down to 24% of our total expenses. We shall see if this comes to fruition. Most farms and ranches overheads account for around 60% of their expenses. In other words, we run a tight ship around here. To survive in agriculture at this moment in time you must reduce input costs as much as possible. There are a few ways we can reduce those costs, but just remember you can’t starve a profit into a business.

In the next blog, I’ll begin to review each enterprise on our ranch. What are the real costs (expenses) associated with that enterprise and how much one might expect to make (income). I will circle back around at the end of the series to talk about overhead expenses and how to keep those under control. Just remember that what I’m sharing is specific to our ranch business and it will be different for everyone. Regardless, I think there are lessons to be learned. Thanks for reading! Please feel free to leave comments below or e-mail me at: mail@parkercreekranch.com

,Travis Krause