This Ranching Business....

In the ranching business there is one paradigm farmers and ranchers cling very hard to. It is that the price they are paid for their product is the only factor determining their profit. This is one of biggest myths going.

The counter paradigm is that your cost to produce a product determines your profit. Think about that statement because it means you are in control of your profit.

You are in control of your ranching business. Not the neighbours who sell for less, or the urbanites you feel do not wish to pay a decent price for food, or those in the supply chain who overcharge, or the government who seems to ignore the problems in your poor industry. But you.

Control Your Expenses

The only way to control them is by getting to know them. To get to know your expenses you need to keep track of them. It is all too easy to move through the year of ranching just keeping up with building, repairing, caring, moving, growing, only to realize that once again the expenses were more than anticipated for the year.

The surest way to get yourself stuck in a costly situation is to not see it coming. Regularly recording your expenses allows you to see your spending limits and when you are approaching them.

Control Your Overheads

Learn what your overhead costs are and take measures to control or eliminate them. Overheads are fixed costs that do not fluctuate on a per unit basis. For example the payment for a tractor and its maintenance is the same no matter if you have ten sheep or ten thousand sheep. It is an overhead cost. Your total cost for feed or vaccinations, on the other hand, fluctuate on a per head basis. These are direct costs.

Overheads still cost you money even if they are not used for a particular enterprise. Any pieces of iron that you don't use for raising sheep still cost your ranching business an overhead price or costs you in lost opportunity dollars. Eliminate unneeded machinery and building overheads.

Learn the Difference Between Economics and Finances

This is a basic distinction that can save you much hassle when doing your ranching business numbers and start you on the road to profit.

Finances are what the banker wants to know about because your finances reflect your cash flow, thus how you will make payments should you borrow money. Finances (ie cash flow) will determine how you pay for supplies in a given year.

Economics are what you need to pay attention to because economics are about your profit. The economics of an enterprise will determine if that enterprise is indeed a viable one or one that should be dropped like a hot potatoe.

Number Crunch on a Regular Basis

With pencil and paper or in a computer program, it doesn't matter. Either way doing them on paper or computer will bring about different perspectives than the one generated in your head while your working on the fence line. It will lessen your spouses frustration as well!

Doing both your finance and economic numbers on a regular, more than once per year, basis will give you clear indication of the direction you are heading in and allow you to avoid untimely traps.

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