Business planning, economic analysis and marketing strategies — these are all things that can cause most ranchers’ eyes to quickly glaze over when mentioned. Not many, if any, ranchers get into the cattle business to sit behind a computer and create long-term business plans, marketing strategies or crunch numbers to compile an economic analysis, so it really shouldn’t be a surprise that when it comes to the business side of cattle that there is a lot of room for improvement in many operations. However, planning, analysis and strategies are often the things that can have a considerable impact on improving the business’s bottom line and long-term viability.
As ranchers know all too well, beef production is a complex and diverse business that has many unforeseen challenges. The demands of the day-to-day operation combined with the vast financial management requirements of the business can be overwhelming and often neglected.
It is easy to get bogged down in the daily demands of ranch operations and the all-encompassing facets of financial and organizational management of beef production, especially when the entire operation and management of the business from production to marketing is often done by one or two people. Financing requirements, cash flow, cost analysis, tax implications, market volatility and risk management are all extremely time-consuming and require significant management consideration. The demands of these aspects of management on top of the day-to-day operations of the business often means some elements of management are neglected, and without careful consideration and management, financial and organizational issues can gradually build up over time and erode the business’s viability.
It is also critical for any business to have solid financial management to sustain and overcome the possible disasters and inevitable challenges that can strike without warning. If a business is not on stable financial footing when disasters strike the crisis can pull a business down very rapidly like quicksand. Drought, market disruption, an animal health crisis, just to name a few, are some of the quicksand issues that can very quickly threaten a ranch’s viability. Even when financially sound, these situations can have severe consequences for the business; however, if strong financial management and monitoring is in place the operation is more likely to sustain such circumstances and more quickly recover.
The most common question from ranchers regarding improving overall financial management of the operation is: “Where do we begin?” There is no doubt that the complexity and diversity of beef production makes financial assessment and management more challenging than in some businesses; however, that makes it that much more essential to success. Ultimately, the first place to begin is with a current assessment of the financial and production situation, and this begins by determining the overall profitability of the operation.
In recent decades, considerable focus has been placed on the importance of determining cost of production and maintaining a low cost of production in ranching. While this is a fundamental metric for financial assessment the ultimate measure of success is profitability. Profit factors in both the cost of production and the value of production and are an essential measure of a business’s long-term viability and unless put in the context of overall profitability, trying to minimize cost or maximum value can be futile.
Once an assessment of the business is completed, ongoing monitoring or benchmarking of the key business performance metrics, both year-over-year within the operation and with industry best practices for similar operations, is crucial for ongoing success and continuous improvement. Benchmarking also allows businesses to persistently strive to improve in areas that are critical to the success of the operation. Undertaking this type of financial assessment and ongoing monitoring also ensures the business is quantifying and monitoring key production variables that are paramount to overall success and often clearly identifies areas for improvement.
The immediate followup to the first question of “Where do we begin?” is “How do I improve the bottom line?” Although ranches are extremely complex and diverse, there are definitely a few key areas to focus on to improve the overall profitability of an operation. The main areas of focus fall into three key areas: production optimization, information utilization and innovation adoption.
Production optimization is essentially self-explanatory and refers to those key production variables that we all know are essential to successful operations. This includes increasing conception rates, decreasing calf death loss, improving weight gain and optimizing feed utilization. As with all decisions within the business, these must be put in a financial context. Focusing on one or any combination of these key production measures in the context of overall profitability will ultimately improve the overall success of the business.
Beef production generates an immense amount of data and as an operation begins to focus more on the financial and organizational components of the business, even more data is captured and available to management. Data is only as valuable as the analysis for which it is used and so collecting data in and of itself does not derive value. It is crucial that the information be shared and utilized if the full value is to be captured. It is for this reason that benchmarking, or internal and external comparison, is so important for the business.
The final common trait of a successful business is innovation adoption. Successful businesses persistently strive for improvement through ongoing education and early adoption of innovations that may benefit the business. Whether this is through genetic improvement, feed efficiency or marketing strategies, successful businesses exploit innovations and are continuously seeking out novel ways to remain competitive and profitable.
It is unquestionable that an increased focus on business planning, economic monitoring and marketing strategies improves the overall sustainability of a beef operation, nevertheless this is a daunting and overwhelming undertaking for ranchers. All decisions, whether production, marketing or financial are easier when supported with information. As the business of beef becomes more and more competitive, ultimate success must concentrate on intensified management of all facets of the business, especially the financial and risk management aspects. Long-term viability of ranching operations has and will continue to hinge on the optimal utilization of resources to maximize production while minimizing costs and securing profitability. Only through enhanced management can you find that balance.
Sandy Russell is a partner in Spring Creek Consulting, Outlook, Sask.