Management Under COVID-19
We trust that you are still keeping yourself, your loved ones, and your community safe from the Coronavirus.
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Editor’s note - For sake of illustration, this article will be discussed in the context of a cattle ranching operation. However, the discussion substantially applies to all industries.
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Our last month’s article was on dealing with an IRS tax audit. This article goes back to the basics of ranch management based on knowledge that comes from good planning and record keeping. Do you know how your ranch is doing and the expectations for the balance of the year under the new economy caused by Covid-19? Did you review your key production indicators (KPI’s) and identify areas for improvement? How are the actual numbers comparing to your budgeted numbers? Should changes be made to increase the efficiency of operations by increasing revenue, reducing cost and/or freeing up capital? Has the budget been updated for any changes in the assumptions used when it was developed? The key to good management is record keeping, gathering data and using that information to increase your knowledge about your operation. Management under Covid-19 should be the same as before but the facts may change and your reaction to those facts may be different but the process should be consistent. There are eight steps to good ranch management.
Have a Plan
First is the development of a budget/management plan itself, which is the compilation and integration of the other seven components.
Record/Data Keeping System
The second 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 data. Robert Saik, in his book The Agriculture Manifesto, states that Data “is the biggest opportunity in agriculture …because agriculture data is growing at an exponential rate.” Data, combined with technology, will provide opportunities for greater profitability. It also provides managers the ability to identify KPI\s to conduct enterprise analyses, to prepare financial statements, to develop monthly and annual operational reports.
Land Management
Third is the pasture management plan, which includes the soils, forages and water resources data. Florida is now requesting the collection and reporting of levels of nitrates and phosphates from fertilizing and other ranching activities. The ranch budget is grounded by the pasture management plan, which forms the foundation upon which the other operational components rest. The pasture management plan is the first component to address in ranch management.
Land Usage Management
Fourth is the stocking rate management plan which is based on the land management plan. This entails the matching of grazing livestock numbers to forage production as well as managing and adapting livestock numbers as forage production changes throughout the year/years. Other potential of revenue sources might be identified in this process such as hay or blue berry production.
Herd Management
Fifth 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. This is where the bulk of your KPI’s reside to identify areas for improvement.
A Marketing Plan
Sixth is the marketing plan, which leverages the attributes of the herd for optimum economic results. Usually, this means managing the ranch resources so there is an element of flexibility within the stocking rate. This includes the retained ownership of breeding calves or other purchased cattle opportunities as well as timing sales of culls and steers with favorable periods during cattle market cycles.
Personnel Management Plan
Seventh is a personnel management plan. For larger operations this should allow a manager to focus on developing the skills and knowledge of the ranch staff to build their 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 employees. It also includes performance evaluations, goal-setting sessions, training and professional improvement.
Cash Management-Financial Plan
Last but definitely not the least is the financial plan. This includes cash flow for the daily operations, projected revenue, capital expenditures, asset disposals and taxes. Cash is king. Good accounting records will provide the information needed for projecting your daily operating cash needs, cash inflow from revenues and taxes. Often overlooked is the potential cash from underused working capital. There is a good saying that if an item rusts, rots or depreciates, it should be avoided where possible. Review your equipment on the ranch for any items that have not been fully utilized in the past two years. It seems all ranches have idle equipment and that is working capital that is not working. An analysis of equipment as a function of acreage is one way to review your equipment needs. A rent/lease verses owning analysis may provide an added opportunity to free-up capital. Your financial advisor should be able to help with that analysis. In addition to tying up working capital, excess equipment incurs hidden cost such as storage cost, insurance cost and property taxes.
Summary
During these exceptional times of the Covid-19 epidemic, ranchers need to focus on the ranch management basics. Have a plan, gather your facts, analysis them and act accordingly to maximize your profit and/or minimize any loss. Your financial advisor should be of assistance in the review of this process and should be able to help with the collection and analysis of the data. As always, prepare proper documentation to defend against an IRS assertion of an operation being consider a hobby.