Farm Management Minute: How to increase profitability in your livestock
November 6, 2014
Many of you have either sold your calves or will sell them in the next few weeks. This will probably be a year of record income for many of you, but will it be a year of record profit? I hear the term income more frequently than the term profit. Many ranches are handling millions of dollars of income and expenses each year and when we look at the bottom line the word is profit. So how do we make sure that we will have a profitable year? Now that the 2014 year is almost finished, I want you to start looking at how to become more profitable for the 2015 year.
1. Create a cash flow plan:
Sit down with the past year, or even better, the past 3 year income and expense statement and see where you need to budget for 2015. Look at the areas where you can decrease management cost without decreasing income. There is usually a breaking point where decreasing expense ends up hurting the income side. If you have never created a Cash Flow, your lender or an Instructor from the SD Center for Farm/Ranch Management can assist.
2. Enterprise analysis:
In every operation there are specific enterprises that are more profitable than others. The key is to have the management skills to analyze those individual enterprises. An example of individual enterprises are: Cows, backgrounding calves, corn, millet, or oats. Each of these enterprises is its own entity within the operation. If a specific enterprise has not been profitable over the past few years, the question is why we are still operating the same way. Knowing what you are doing is the key to success. I do understand that not everything we do with our enterprises is always profitable but gives some profit to another enterprise. Review this past year to see if your investments made the returns you were expecting.
3. Work smarter:
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With the new resources that are available throughout the state, there is no reason that you can't educate yourself before you try something new in your operation. Especially now that the winter months are coming. Attend some educational meetings that are being offered. Take time to start researching a different enterprise for your operation. Most operations now have computer technology at home to do the research. Give that task to a younger member of the family to see what they can do to find that extra profit in the operation. There are so many different ways to become more profitable that don't require a huge investment.
4. Return on Farm/Ranch Assets:
So what kind of rate of return should you expect for your operation? Going back to 2010 we saw an average rate of 15.23 percent return on assets, 2011 10.40 percent, 2012 10.20 percent, 2013 5.10 percent. Yes that is a decline overall on our investment. As stated in the above paragraph, we are handling a lot more money but are in a down swing with rate of return on our assets. Many of us know that our expenses keep increasing. It is crucial to find those expenses that we can decrease without decreasing the rate of return.
For some operations it could be a very successful year, while for others it might be a struggle. For now, it is wise to start preparing for the 2015 year. Make decisions that will create cash flow and be profitable for each enterprise that will give us a return on every dollar of investment. If you have any questions about your cash flow planning, please contact the South Dakota Center for Farm Ranch Management at 1-800-684-1969 or David Koupal at 605 995-7193 or email David.Koupal@mitchelltech.edu