Saying you’re in the “cattle” or “ranching” business has many connotations. You may run cows and calves, manage stocker cattle for others, feed cattle in a feedyard or all of the above, and even those tend to overlap in terms of costs. Those different areas within your business are called enterprises. In order to reach and maintain success, you need to know the different enterprises that make up your operation and which ones are making or losing money.
“If you’re in any type of business, you need to know the different enterprises that make up that business, what the costs are and what profitability there is,” says Kerry Cornelius, associate director of Texas Christian University’s Ranch Management Program and stocker cattle operator. “I wouldn’t even think about running a business of any type without an enterprise analysis.” That’s why enterprise analysis and budgeting are an important component to TCU’s Ranch Management Program.
As a graduate of that program, Gilly Riojas took what he learned about creating budgets and running enterprise analysis back to his family’s cow-calf operation in central Texas. Mr. Riojas knows that there are a number of enterprises that are behind the primary business; in addition, there are a number of enterprises that could be added to expand the use of the land and to make the business more profitable.
“Our primary goal is to be profitable, but we also have to look at debt service and building our equity as important keys to our operation,” says Mr. Riojas, general manager of the family’s operation, GilMac Cattle Co. What they have done is improve that opportunity for the land by evaluating other potential uses through budgeting and enterprise analysis.
“We run enterprise analysis to show what is best for the land that we are leasing,” he says. “Most of the land we lease is good for either cows or steers, so we make our decision on which enterprise has the best profit potential, least risk and least equity exposure.” As lease operators, they have to look at the total potential for a piece of land. They look at carrying capacity, improvements that need to be made and costs of running the animals.
The biggest change that they have made is moving away from being only a cow-calf operation. “The biggest obstacle in the cow-calf world is that you might only have one or two paydays. To increase our cash flow, lower our overhead costs and maximize all of our assets, we have started pasturing cattle and preconditioning cattle for others,” says Mr. Riojas. This allows them to optimize land use and boost profitability.
Starting an enterprise analysis can be daunting if you’ve never done one before. There are a number of records and information that you need to get started, but the good thing is that once you’ve done one, the others fall into place and updating the analysis several times a year becomes quite easy. One place to start is with production records.
“Production records are the key to an enterprise analysis,” says Mr. Cornelius. “Average daily gain, calving dates, days on feed, price of feed, mineral consumption, animal-health budgets all can go in an analysis. If you want to analyze your haying operation, know how much fertilizer you put on the field, how many bales did you produce per acre, how much do the bales weigh?” All of that production data can be used to run an analysis.
Mr. Riojas says they’ve kept their production records on Excel spreadsheets. “We use Excel and other computer software to track everything from feed records to calf sales to cow performance and vaccination programs. All of those records help show us our annual cow cost, profit per acre, precondition cost, calf average daily gain, overall cow performance and overall what enterprise is the most efficient.”
Although there are a number of costs associated with any business, there are two items that are often overlooked in a cattle business analysis. Those are replacement cost and depreciation cost, points out Kris Ringwall, North Dakota State University extension beef specialist. This becomes especially important since replacement female prices are high right now. With the analysis, you can determine whether that $1,200 cow will generate enough income to offset the purchase cost as well as maintenance cost. “You have to look at what it will take to put those high-dollar replacements into your operation and know how long it will take for that cow to attain her value,” says Mr. Ringwall.
As for depreciation, you can usually find that information on your Schedule F of your 1040 tax forms. This form can also help determine other costs associated with different enterprises of an operation.
Once you’ve got your records together, you can begin the analysis. For many, it’s easier to use a computer and set up spreadsheets to make the calculations. Once formulas are placed in cells, then you just update those numbers, rather than having to start all over. But, you can do an analysis without a computer, says Mr. Cornelius, it just takes more time. Once you have your analysis in hand, you can then compare your different enterprises year after year or compare them to other operations that use the same measures that you’ve used.
For the producer starting out, they need to first measure production, then gauge that to the enterprise budget to say ‘Did I make money or not,’” says Mr. Cornelius. “You can then use projections where you can analyze situations to make management or marketing decisions.”