Jumping into the cattle business today can bring significant rewards with historic market prices expected to stick around. However, that move also involves significant risk considering the amount capital required to make the investment. For many young people, such as myself, with aspirations to get involved in the family business or starting an operation from scratch, considering the risks and opportunity with a business plan is critically important to making the venture successful.
Three important objectives exist when making these plans:
- Review ranch business plan components: mission and goals, key planning assumptions, operations, organization and management, financial plan, control and records.
- Review components of the financial plan and identify planning tools.
- Identify key business planning and management resources.
The significant capital investment required for these operations often requires the use of a significant amount of savings or outside investments in the form of start-up or operating loans, or the possibility of other sources of revenue/income. Going into the process with a business plan and business budget planning can make the difference between success and failure.
A well-thought out ranch business plan should consider:
- Mission or vision statement and goals
- List of key planning assumptions
- Market analysis and marketing plan
- Description of operations, organizations and management
- Financial plan
Including these aspects can help new cattle producers to identify potential pitfalls, areas for improvement, unconsidered opportunities and improve relationships with business partners or others involved in the operation investment. If more than one person is involved in making contributions to the operation, this is an appropriate time to identify roles and responsibility for decision making.
Record keeping is a critical component to operating a business and financial planning. Not only will this pay off for tax filing, but records will help to identify business (in)efficiencies, cash flow, and profit/loss aspects to the operation.
Financial planning in a cattle operation can be complex due to the nature of the business, combining fixed and operational costs. Capital investments such as purchasing livestock, land, interest, taxes, pasture improvements, equipment and buildings should be included in budgets. Often it is more feasible for beginning producers to lease land vs making large purchases, and hiring custom crews for harvest should be considered over making initial large investments in equipment. To make an appropriate budgets, consider each cost or revenue in the terms of $/head of livestock to determine the feasibility of return on investment.
The business plans and budgets only serve as a road map for the operation. Unexpected expenses may occur, years of drought may require a greater purchase of feedstuffs or reduction in herd size, and equipment breakdowns or poor animal performance may bring about disruptions in revenue and expenses. Consider these costs and opportunities in the operational budgets.
Available links for more information via Oklahoma State Master Cattleman Program:
- IFMAPS: A Partner in Farm Financial Planning (Publication)
- Quicken for Farm/Ranch Financial Records (Website)
- Oklahoma Farm and Ranch Account Book(Website)
- Minnesota Institute for Sustainable Agriculture and The sustainable Agriculture Network – Individual Chapters (Website)
- Developing a Cash Flow Plan (Publication)
- Farm and Ranch Stress Test (Publication)
- From Cash Records to Cost of Production (Publication)
- Using Enterprise Budgets in Farm Financial Planning (Publication)
- Ownership of Machinery versus Custom Harvest (Publication)
- Wheat Grazeout versus Harvest for Grain (Publication)
- Farmers in Transition: Evaluating Options for Change (Publication)
- Developing an Income Statement (Publication)
- Liabilities Schedule (Publication)
- Schedules of Assets (Publication)
- Budgets: Their Use in Farm Management (Publication)
- Developing a Balance Sheet (Publication)
- Evaluating Financial Performance and Position (Publication)
- Quicken for Farm Financial Records (Publication)
- OSU Enterprise Budget Software (Website)
- Strategic Business Planning for Commercial Producers (Website)
- Assistance in estimating machinery costs and break-even acreage for agricultural machinery (Website)
- Financial Record Keeping for Farmers and Ranchers (Publication)
- INVenture Business Planner from Purdue
- Ranch Calculator (RanchCalc)
- Evaluating Options for Change
- Quicken for Farm and Ranch Financial Records
- Information Systems for Oklahoma Farmers
Information and resources for this post were adapted from the Beef Cattle Manual, a publication of the Oklahoma Cooperative Extension Service and the Oklahoma Master Cattlemen Program. Learn more at BeefExtension.com.