Tag: Ranch

7 Steps to Creating a Successful Ranch Management Plan

7 Steps to Creating a Successful Ranch Management Plan

By Hugh Aljoe
Director of Producer Relations

Posted Jan. 1, 2020

What is intentional management? It might be easier to describe what it is not than to describe what it is. In an attempt at “tongue-in-cheek” humor, let me describe what intentional management is not.

You might not be managing intentionally if:

  • Your record-keeping system is a shoe box or a file folder in which you keep receipts until tax time.
  • Your marketing plan is to sell the largest calves each time you pen the herd, weaning the calves en route to the sale barn.
  • Your winter feeding program is to provide cubes a couple of times a week to the herd without knowing the quality of the hay or standing forage on offer.
  • Your stocking rate was set by what the neighbor, your granddad or your real estate agent suggested, and you don’t adjust it until drought forces you to.
  • You don’t routinely test and analyze your pasture soils, yet you routinely apply fertilizer.

I’m sure you can think of other s of how we as producers too often go about “running” cattle with little forethought and planning. In favorable years, we can get by easily enough, but in unfavorable years (due to weather, markets or other issues), difficulties arise. These unanticipated surprises can be costly and often difficult to overcome. Hopefully, most of us learn from our mistakes and failures and, if we survive, can laugh at them in hindsight. The secret is to fail early, fail often, but fail cheaply — and adapt our management so that we do not repeat our mistakes.

MANAGE WITH INTENT

Intentional management is the active management of the collective components of an operation toward the achievement of realistic, well-defined goals. It is a holistic and forward-focused management approach in which an operational management plan is created and used as a template to plan and prioritize activities then to monitor and measure progress toward defined production and economic objectives. Management plans need to be built to complement the resources of the operation — the land, facilities, personnel and production system(s) being operated. Even though there is always some uncertainty within an agricultural operation, with a management plan in place, a producer has a road map to guide him or her toward a predetermined outcome. When variations in climate or markets or other surprises occur and force a change of course, having the plan in place helps guide a producer to either continue to navigate toward the original outcome or alter the course toward a new, more realistic or attainable goal, given the circumstances.

PLANNING BRINGS CLARITY OF PURPOSE

For intentional management to be more than a concept, it takes forethought, planning and action. The biggest challenge for most producers is getting started. It is much too easy to get caught up in the day-to-day activities of running a cattle ranch or agricultural operation. It is in the intentionality of developing a management plan where clarity of purpose is achieved. This is where a manager establishes a vision of a desired future for the ranch, identifies the key management objectives to be accomplished, devises an action plan that addresses the critical aspects of each management component, and integrates these components into the management plan for the ranch that the entire staff will implement.

The management plan for the current year becomes the template for the following year, with continual fine-tuning and adjustments over time while adapting to the changing industry, market conditions and climate variations that will occur. Through intentional management and use of a management plan, managers are more likely to attain their desired goals, will experience fewer surprises, and are better prepared for the unexpected when it occurs. Then, instead of just laughing at mistakes of the past, we can laugh ourselves all the way to the bank.

Cattle in pasture

7 STEPS OF INTENTIONAL MANAGEMENT

1. MANAGEMENT PLAN

First is the management plan itself, which is the compilation and integration of the other six components.

2. PASTURE MANAGEMENT

Second is the pasture management plan, which includes the soils, forages and water resources. The management plan is grounded by the pasture management plan, which forms the foundation upon which the other components rest. The pasture management plan is the first component to address in intentional management.

3. STOCKING RATE MANAGEMENT

Third is the stocking rate management plan, which entails the matching of grazing livestock numbers to forage production as well as managing and adapting livestock numbers as forage production changes within and throughout years.

4. CATTLE MANAGEMENT

Fourth is the cattle management plan. The cattle management plan includes the breeding, nutrition, health and husbandry aspects of a cattle program, which ideally complements the land resources of the operation.

5. MARKETING PLAN

Fifth is the marketing plan, which leverages the attributes of the cattle and management for optimum economic results. Typically, this means managing the ranch resources so there is an element of flexibility within the stocking rate for retained ownership of calves or other stocker cattle enterprises as well as timing sales with favorable cattle markets and market cycles.

6. RECORD-KEEPING SYSTEM

The sixth component is a good record-keeping system for ranch operations. This is a record-keeping system that allows easy tracking and monitoring of critical production and economic information. It also provides managers the ability to conduct enterprise analyses, prepare financial statements, and develop monthly and annual operational reports.

7. PERSONNEL MANAGEMENT PLAN

Seventh is a personnel management plan, which allows a manager to intentionally develop the skills and knowledge of ranch staff to build competencies and enhance their value to the operation. A personnel management plan addresses the needs of the operation, from onboarding a new employee to rewarding valued and tenured employees. It also includes performance evaluations, goal-setting sessions, training and professional improvement.

10 Best Management Practices for Running a Profitable Ranch

Some folks purchase rural land for pleasure as much as for profit. Motivated by a dream of running a hunting operation, raising cattle or having their own place to roam, they may forget that the land can help to pay for itself.

Do first things first. Most people never accomplish their goals because they focus on what they know how to do, what they like to do, what’s easiest and what’s urgent. – Danny Klinefelter (Texas A&M University agricultural economist)

“Most people ranch or farm because they love growing things, they love animals, they love being outside, or they love being independent,” says Danny Klinefelter, an AgTexas Farm Credit board member and Texas A&M University agricultural economist. “Not as many enjoy the financial, marketing and people management sides of the business. But these days, that’s where you need to focus.”

Klinefelter offers ten best management practices that can be especially helpful for new ag operators and rural landowners.

“These are things that any producer can do, but that 95 percent of producers don’t,” says Klinefelter, who is also a farm management expert with Texas AgriLife Extension. “If you’re looking for ways to get better, this list would be a good place to start.”

 

1. Match costs with revenues. (Book)

Too many producers treat costs and earnings separately. Focus on managing the margin between costs and revenue by looking a few months ahead. Cattle producers, for instance, can lock in the price of future inputs such as feed, and then use the cattle futures market to protect their selling risk.

“Too often, farmers and ranchers wait to get a better deal,” Klinefelter says. “If you lock in a profit, it’s hard to go broke.”

2. Play “What if?” . (Website)

Don’t limit yourself to considering most-likely outcomes. Plan for the worst. Start with the four Ds—what if someone dies or becomes disabled, what if there’s a divorce, or what if a key player departs?

Klinefelter uses insurance to illustrate the need for contingency planning. If you take off a hay crop every year for extra income, you might be able to ride out a drought. But if you produce hay and cattle in a drought-prone region, you may want to consider weighing the cost of Pasture, Rangeland and Forage Insurance against the cost of  purchasing hay for feed.

“You might hate to pay the premium, but look at what could go wrong and ask yourself if you can afford it,” Klinefelter says.

3. Stay on top of your business. (Book)

“Successful managers monitor and analyze their performance,” Klinefelter says. “They’re more likely to spot problems and opportunities before it’s too late. Business problems are like cancer—they eat away at profits. But if you spot them early, they’re often treatable.”

For example, many ag operators take last year’s cash-flow budget and adjust it for next year.

“Usually, lenders won’t settle for this,” Klinefelter says. “They know that ranchers and farmers consistently overestimate projected earnings.”

Each month, check projections against current cash flow. If this month proves worse than projected, you may need to adjust your expenditures.

4. Establish priorities—the 80:20 rule. (Book)

The 80:20 rule says that 80 percent of what we accomplish is produced by 20 percent of what we do.

“Do first things first,” Klinefelter says. “Most people never accomplish their goals because they focus on what they know how to do, what they like to do, what’s easiest and what’s urgent.”

For example, if you operate a hunting ranch and prefer the hands-on work of building feeders and maintaining deer blinds over marketing, it might pay to hire a marketing professional to promote the business.

profitable ranch advice

5. Conduct autopsies.

Evaluate key decisions to avoid repeating mistakes. What went well and what went poorly? What did you overlook, and which assumptions led you wrong? What did you learn?

Consider the rancher who raises purebred cattle for potential embryo and breeding stock sales. If that business model is too labor- or input-intensive, it may be time to switch to a more traditional cow-calf business model.

6. Do little things better—the 5 percent rule.

“Studies show that the most sustained success comes from doing 20 things 5 percent better, rather than doing one thing 100 percent better,” Klinefelter says. “Also, the most profitable producers tend to be only about 5 percent better than average farmers in terms of costs, production or marketing.”

He uses wheat to illustrate how little things add up. Assume the seasonal average wheat price was $7 a bushel. Others waited for prices to hit $8, but that never happened. You locked in a sure thing by forward-contracting for $7.35, just 5 percent higher than the average price.

7. Benchmark your performance.

“Most producers have no clue how they stack up against their competition,” Klinefelter says. “They think they’re average or a little above—but it’s not possible for everyone to be average or above. How do you stack up against the top 25 percent?”

Consider, for instance, that you raise cattle, and your calves have a lower average birthrate than those on similar operations. Find out how others have improved survival rates in their herds.

profitable-ranch-advice-cows

8. Analyze what to stop doing.

“Successful managers spend as much time analyzing what they need to stop doing as they do evaluating new opportunities,” Klinefelter says. Such analysis can lead to shedding assets, enterprises, people, land leases or unnecessary practices.

He cites the case of a family that produced milo and cotton crops that were only marginally profitable. They generated more profits buying calves and putting them on winter wheat in November, and selling them each spring.

“These brothers decided to lease their cropland to other farmers and focus on what they did best—raising cattle. It made a huge difference,” he says.

9. Use accrual-adjusted income to evaluate profitability.

“Cash-basis accounting is great for simplicity and tax management, but it’s a poor way to measure true profitability,” Klinefelter says. “Cash-basis often lags accrual-adjusted accounting by two to three years in recognizing profit downturns and upturns. By then, it’s too late to respond.”

You don’t need an accrual accounting system, however; simply prepare balance sheets that reflect the beginning and end of the period for which you’re measuring income. Include inventories, accounts receivable, prepaid expenses, accounts payable and accrued expenses.

10. Learn from the E-myth principle. (Book)

The E-Myth” a book by Michael Gerber, talks about how many people believe they can succeed as entrepreneurs, when in reality most small businesses fail. Gerber maintains that most business owners begin with a fatal assumption—that if you understand the technical side of your business, you understand how to run the entire business.

Klinefelter suggests you apply this lesson to ranching, by learning about other players that affect your operation—employees, buyers, suppliers and funding sources.

“Find the top three things that most frustrate each of these groups in dealing with a business like yours. If you can reduce those frustrations, you can become the supplier, customer, employer, borrower or tenant of choice,” he says. For example, ag lenders such as Farm Credit like to hear from customers when changes occur—don’t wait until the end of the year to contact them.

Do you manage a ranch or farm? Share your tips for running a successful business in the comments section.


This article appears in the fall 2016 issue of Texas LAND magazine and was provided by Farm Credit Bank of Texas. Visit www.landmagazines.com to read more and subscribe to future issues of both LAND magazine and Texas LAND magazine.