BUSINESS STRATEGIES FOR NEW AND

YOUNG FARMERS

RHINESTONE CATTLE CO.

COLDEN, NYMEG GRZESKIEWICZ

NICE TO MEET YOU!

TOTALLY IMPOSSIBLE ON A SUCCESSFUL FARM:

YOU CAN’T DO IT ALONE! (NO MATTER HOW RICH YOU ARE)

YOU CAN’T SEPARATE AGRICULTURE FROM BUSINESS!

WHAT WE’RE GOING TO COVER

CRASH COURSE IN FARM ECONOMICS AND BUSINESS PLANNING• What not to do• Minimum-input production

SUCCEEDING IN THE BUSINESS OF AGRICULTURE• Building knowledge and experience• Getting started in a controlled environment• Getting started on your own• Legal considerations• Building a reputation as an expert

WHAT MOST PEOPLE DOMoney I Make: Money I Spend:

Beef Cattle $10,000 Mortgage -$12,000Chickens $3,500 Tractor & Equipment -$13,000Hay $6,000 Feed -$4,500Day job in town $45,000 Lawyer/Accountant -$4,500

Total Income $64,500 Total Expenses -$30,700

$64,500 - $30,700 = $33,800

I’m doing great!

WHAT’S SO WRONG WITH THIS?Money I Make: Money I Spend:

Beef Cattle $10,000 Mortgage -$12,000Chickens $3,500 Tractor & Equipment -$13,000Hay $6,000 Feed -$4,500Remove day job income Lawyer/Accountant -$4,500

Total Income $19,500 Total Expenses -$30,700

$19,500 - $30,700 = -$11,200

Oh S#@% !

DEFINE ENTERPRISES AND DIVISIONS

How do we sort that out to figure out where the problem is?Split your business into as many tiny pieces as possible.

• Each individual end product is designated as its own ENTERPRISE.• Many of these enterprises require similar resources. • Group enterprises into DIVISIONS.

Whole Business

Division Division Division

Enterprise Enterprise Enterprise Enterprise Enterprise Enterprise

ENTERPRISE/DIVISION MODEL

Whole Business

Cattle Division Chicken Division Hay Division

Cow-calf Owned stockers Custom grazing Broilers Layers Wrapped hay Dry hay

CLASSIFY EXPENSESDecide if each expense is a DIRECT COST or an OVERHEAD COST• How can you tell? • Direct costs are found only on the enterprise level.• Overheads are found at the division and whole business level.

Classify each overhead cost as a DIVISIONAL overhead or a TRUE (whole business) overhead• What if the product of one enterprise is used for another enterprise (hay fed to cows)?• Where does ownership of land fit in?

ECONOMICS CRASH COURSERevenue – expenses = profit (or loss)

When you split expense categories:Revenue – direct expenses = gross margin – overheads = profit

Using enterprise/division model:Enterprise: Revenue – direct expenses = GMDivision: Sum of all enterprise GMs – divisional overheads = divisional GMWhole business: Sum of all divisional GMs – true overheads = profit

RECORDS ON ENTERPRISE LEVEL (HANDOUT)

Division: CATTLE, Enterprise: COW-CALFDate Paid to/money from Item Description Cost/Income

STARTUP/CAPITAL EXPENSES (for this enterprise only)4/15 Jackson Fence Perimeter fencing for west pasture -165804/26 Miraco Water Systems Frost-free waterers (3) -876

DIRECT/OPERATING EXPENSES5/25 Free Choice Enterprises Mineral order -4606/3 Cattletags.com Replacement ear tags -357/24 Martin's Feeds Molasses lick tubs -1388/12 Bob Thomas Trucking Hauled cattle to leased pasture -2509/2 Rocking J Ranch 900-lb round bales, qty 600 -21,000

REVENUE4/25 Thousand Hills Cattle Co. Sold last year's calf crop as yearling stockers 48,50010/26 Central Montana Livestock Market Sold 5 cull cows 4,700

ENTERPRISE GROSS MARGIN 13,861.00

RECORDS ON DIVISION LEVEL (HANDOUT)

Division: CATTLE

ENTERPRISE GROSS MARGINS:Cow-calf 13861.00Owned stockers 14263.00Custom grazing for Pine River Ranch 19794.00

DIVISIONAL OVERHEAD COSTS:Date Paid to Item Description Cost

1/6 Cattlemax 1-year herd records subscription -100.002/6 Carson James 2015 lease payment -6500.002/22 Hamilton Land Trust 2015 lease payment -3000.003/5 Priefert Ranch Equipment Bought new corral system -23000.006/18 Josh & Ben Hired labor for branding -400.008/12 Premier Auto Repair Tires and brakes for pickup truck -740.00

CATTLE DIVISION GROSS MARGIN 14,178.00

RECORDS ON WHOLE BUSINESS LEVEL(HANDOUT)

DIVISION GROSS MARGINS:Cattle 14178.00Chickens 3264.00Hunting leases 3135.00Gas leases 4233.00Hay 17462.00

TRUE OVERHEAD COSTS:Date Paid to Item Description Cost

2/14 Hardyville John Deere Tractor parts -1124.002/6 Five Star Bank Mortgage on owned ranch -12000.006/1 Exxon Got ranch diesel tank filled -4000.0012/31 Jake (full time ranch hand) Total annual pay -15500.00

BUSINESS PROFIT 9,648.00

GROSS MARGIN PER UNITGross margin per unit = enterprise GM ÷ number of units

A “unit” can be a unit sold, total units in enterprise, or an overhead item.

Why does this matter?• Best measure of profitability• Return on investment• Responsible use of overhead

FINDING YOUR PROBLEMS (HANDOUT)

Enterprise Cow-calfOwned

stockersPine River cust. graze Wrapped hay Dry hay Broilers Layers

Revenue # # # # # # #Direct costs # # # # # # #

Gross margin # # # # # # #GM/acre

Division Cattle Hay Chickens

Sum ent. GMs # # #

Div. overheads # # #

Gross margin # # #GM/acre

Whole business Crystal Creek Ranch

Sum div. GMs #

True overheads #Profit/loss #

Profit per acre

USING THIS ANALYSIS TO FIX A FARMWhy does this matter?• Compares overhead to scale of production

• Allocates ROI responsibility to proper enterprise

• Helps you put your monetary investment into the right places

• Allows for revision of enterprise mix

PLANNING A NEW BUSINESSWhat happens to a farm (or any business) without a plan?

Planning your grazing business venture:• Carrying capacity• Breeding statistics and stock flow• Economic projections • Choosing your enterprise mix• Cash flow and finance plan

WORKING BACKWARDStart with the farm of your dreams and work backward to today!

• 5 minutes with music• Timeframe for getting to that point

Framing in your goal:• Money• Product• Land and animals

Shoot for dreams, not for breakeven! Is breakeven an illusion?

CARRYING CAPACITY OF PASTURENo specific property: have to ask around.

Specific potential farm:• Forage recovery period (in days) for good, moderate and poor pasture• Grazeable DM per acre for good, moderate and poor pasture (not grazing 100%)• Animal intake percentage of body weight

Grazeable DM/acre x number of acres = Grazeable DM/rotationGrazeable DM/rotation ÷ recovery period in days = Grazeable DM/dayGrazeable DM/day ÷ animal intake per day = carrying capacityNumber of acres ÷ carrying capacity = # acres per head

BREEDING STATISTICS (HANDOUT)

100% productivity and survival doesn’t happen in the real world.

BREEDING STATS

# of pregnant females in year A: 100

Females that die before next breeding season: 2

Females that fail to calve (abort at some point in gestation): 3 CULL

Females that lose a calf between birth and weaning: 3 CULL

Females that do not rebreed 2 CULL

# of pregnant females in year B: 90

Calf crop percentage: 90%

Percentage of females that must be replaced annually: 10%

STOCK FLOW (HANDOUT)

YEAR MAX # CARRYING STARTING INVENTORY SOLD/DIED BEFORE WINTER END/WINTER INVENTORY

CATTLE** CAPACITY** COWS 2YR HEIF. 1YR HEIF. BULLS CALVES COWS HEIFERS BULLS COWS 2YR HEIF. 1YR HEIF. BULLS CALVES

1

2

3

4

5

CHOOSING YOUR ENTERPRISE MIX

Choose enterprises that complement each other by:• Making use of the same divisional & whole business overheads• Use each other’s byproducts or create raw materials for each other• Effectively use the totality of resources you have• Make the most money from the least work

List everything you have to work with (resources, byproducts, raw materials, time, labor, etc.)What does this hereby quantified situation lend itself to?

Potential enterprises must pass these feasibility tests!• Economic• Marketing

RESPONSIBLE USE OF OVERHEADSNeed to produce max number of units your overheads will support!

Fast return on investment

How to avoid overheads• Break paradigms• Rent equipment• Hire people• Start with low-input enterprises

Be here

Not anywhere in here

CASH FLOW AND FINANCE PLAN

How will you handle up-front startup costs?• Forecast far in advance• Break up large purchases (proper use of loans)• Time is risk! Avoid stagnant inventory• Word of caution about day jobs

Get other people to pay for stuff!• Get a partner• Get an investor/silent partner• Piggyback onto an existing operation• Forgivable loans and contracts• Don’t give anyone more than 49% control• Be careful about grants

BIGGEST FARM BUSINESS MISTAKES• Off-farm job subsidizes the farm

• Profitable enterprise subsidizes losing one

• Excessive overhead for scale of production

• Needing to own everything

• Thinking that maximum = optimum

• Putting lifestyle over business

COMMIT TO LOW-INPUT!Why were inputs created?What makes high-input producers tick?What’s wrong with high-input?

Maximum production does not equal optimum!

Hard to increase profit by increasing revenue. Much easier to do it by cutting costs.(Niche marketing is an exception)

BREAK TIME

BUILDING KNOWLEDGE AND EXPERIENCEIt’s ALL about who you know!Education• Institution-driven• High school/college• University extension

• Self-driven• Conferences & pasture walks• Join farmer associations• READ READ READ!• Re-read

BUILDING KNOWLEDGE AND EXPERIENCEExperience filters what you learn into what you really need to know.

• Internship• Helping neighbors and friends• Farm manager job

Get as many diverse experiences as you can.

OPTIONS FOR GETTING STARTED

Starting in a controlled environment:

• Work for someone else (laborer manager)

• Herd builder program

• Get paid in cattle

• Buy into boss’s company

• Retiring farmers are looking for apprentice-successors

Going out on your own:

• Don’t do ANYTHING without a full economic analysis

• Utilize other people and businesses to reduce capital needs

• Build a reputation as a professional & expert

LAND LEASES AND LANDOWNERS

Finding land to lease• Regional culture is a HUGE factor• Find a Sacagawea

Talking to landowners (general sales pitch skills)• Have your answers ready• Professional image• Know your numbers• Don’t make landowner responsible for anything

EVALUATING POTENTIAL LEASESBusiness considerations• Location (sale barn, interstate, truck access,

commuting distance, vet)• Surrounding Area (competition, neighbors, dogs)• Other people on the land• Laws (legal fences, zoning, manure, right to

farm, state lines)• Evaluate landowner

Land features• Acreage (get aerial map)• Water• Shade/shelter• Electric• Existing fences, handling facilities

and roads• Soil and forage tests

WRITING A LEASE CONTRACT (HANDOUT)

1. Name/farm name/address/phone/email of landowner and leasee2. Description of land to be leased, with attached aerial map3. Start and end dates4. Liability/Insurance5. Compensation6. Fencing & Supplies (who owns what)7. Grazing Enterprise Management (who controls what)8. Capital Improvements (who pays for what)9. Termination/emergency/drought10.Signatures of landowner and leasee11.Notarize and/or file with county clerk

CUSTOM GRAZINGSelling your management services

Option for you if you can’t find land

Need to know your numbers!

Writing a contract: see handout

YOUR OWN ANIMALSDON’T CHEAP OUT ON SEEDSTOCK

Seasonal operations

Making year-round breeding stock economically efficient

Buy as close to time of return as possible (time = risk)

Stock low to cut winter feed bill

TESTING:PUT YOUR MONEY WHERE YOUR PROBLEMS ARE

• Blood: disease, mineral balance• Manure: visual and fecal culture• Necropsy: field and samples• Males: disease and fertility• Heifers: Pelvic• Linear measuring• Regular weighing

• Soil• Hay and Pasture• Grain/TMR• Water• Rising plate meter: forage

inventory

LEGAL CONSIDERATIONSGet a lawyer and accountantBecome an LLC (or multiple LLCs)Insurance (GL versus livestock)

Local stuff:• Zoning• Legal fence• Livestock shelter and carrying capacity• Manure• Protected watersheds• Building permits• Utilities (call before you dig)

BUILDING YOUR REPUTATION AS AN EXPERTAdds value to your products!

Get your name out there:• Be around! Meetings, pasture walks• Write articles and blogsMust back this up with knowledge and experience

Marketing: image = value! • Come up “business identity package”: logo, fonts, colors, taglines• Advertising, vehicle graphics, apparel• Business cards and brochures

Don’t forget to be approachable to your customer/client (read them)

TAKE HOME MESSAGESYou can’t separate agriculture from business

You can’t do it aloneSelf-driven education is CRUCIAL

You’re dead in the water without a complete grasp on your numbersGet other people to pay for everything

Create the perception that you’re an expert and a professional

Go to Ranching For Profit School

RHINESTONE CATTLE CO.

“I will send grass in thy fields for thy cattle, that thou mayest eat and be full.” –Deuteronomy 11:15

Contact Meg for questions or consulting services!www.rhinestonecattleco.comrhinestonecattle@yahoo.com(716) 517-6415

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List will be posted at www.rhinestonecattleco.com