business planning help

[Ceilismom]

Without getting overly long-winded here, I'll try to explain why/what I need help with.

DH and his brother are partners in a beef cattle ranch that was gifted to them by their parents. Their mother does the bookkeeping. I don't think any of the 3 of them fully understand how to properly run a business (the responsibility was passed on by someone who did only what he had to to get by, to people who just kept doing things the way they'd always been done, only making changes when a banker, accountant or government employee insisted that something needed to be done differently). I don't say that last as a criticism, but to explain why I need help figuring things out.

We are wanting out, and hoping to get into a smaller, more manageable version of the same thing (just DH and me, no more being in business with relatives), but in a different part of the country. We would be starting out without debt, only purchasing the size of property that we could pay cash for, and bringing cows with us. We know the basics of raising beef cattle, though recognize there are different problems in different parts of the country, and we know that a good vet, the Extension Service, FSA and NRCS can help us figure those things out. What we need is someone who can help us figure out if what we want to do can work financially. I'm sure that we also need to write a business plan, but I'm really not sure where to start with this all. Any suggestions?

 

[baymule]

Go to your closest Small Business Administration office, but don't stop there. Many universities and Jr. colleges have offices that help you with your business plan to submit for a SBA loan. You don't have to take out the loan or put in an application for one, but maybe they can help you with planning your business.

You will need at the very least, a 3 year projection of all expenses and income. Three years on a cattle ranch is barely getting off the ground if starting with young heifers, so I would do a 5 year projection. This would include land payments, taxes, insurance, equipment, feed/hay, fuel, labor, barns, corrals, everything you can think of. Work it out IN PENCIL on a spread sheet (so you can erase) or spread sheets on computer.

Then make spread sheets for projected income, including any off-farm income.

You already know what costs are and you know what cows sell for. Now put it down on paper. Then do it again and add all the tiny details you didn't think of the first time. I prefer the paper spread sheets over computer because I can see it all at the same time without scrolling up or down. Just my preference.

Would you sell calves only? Registered stock or grade? Selling registered bulls? Heritage breeds or the souped up double muscled breeds? Grass fed or selling to feed lots? Organic with no antibiotics, chemical wormers, or pump 'em full of both? Private sales or auction barn? Buying hay or cutting your own?

What kind of grasses and forage? Snow? Year round grass?

What exactly is your product and who are you selling to? Identify your market.

Cattle only? Or mix other livestock too? Sheep, goats, hogs, chickens? Any nut/fruit/vegetable sales?

Get the almanac for the state you are moving to for a per capita income level for the area you want to buy a ranch in. Also the state almanac will give you population demographics county by county. It would be kinda stupid to set up a CSA, or direct sale ranch if there is not enough people in the area to buy it from you.

When you leave the ranch partnership, will you be "bought out" or will you still "own" a piece of the action. Will you be leaving with working capital or just a pat on the back and "good luck"? Will you get a share of future proceeds from the brothers ranch? What about mineral rights? If your DH and his brother own the mineral rights, then don't give up his half. Ever.

What is the climate where you want to move to versus where you live now. Sometimes cows have a hard time making the climate/grass/forage change and fail to thrive, sometimes they do even better than where they came from. Will the size of property you can buy sustain you or will one or both of you have to work off the ranch? What is the job market and what are your skills?

That is all I can think of right now. Toss this around and post some more of your ideas.

 

[Ceilismom]

Go to your closest Small Business Administration office, but don't stop there. Many universities and Jr. colleges have offices that help you with your business plan to submit for a SBA loan. You don't have to take out the loan or put in an application for one, but maybe they can help you with planning your business. Thank you! I'll start tracking down an office tomorrow.

You will need at the very least, a 3 year projection of all expenses and income. Three years on a cattle ranch is barely getting off the ground if starting with young heifers, so I would do a 5 year projection. This would include land payments, taxes, insurance, equipment, feed/hay, fuel, labor, barns, corrals, everything you can think of. Work it out IN PENCIL on a spread sheet (so you can erase) or spread sheets on computer.

Then make spread sheets for projected income, including any off-farm income.

You already know what costs are and you know what cows sell for. You'd think so, wouldn't you? But the fact is, MIL handles the bookkeeping, so neither of her sons have much of a clue about the overall picture of expenses. They know things like "mineral is too expensive this year, we're not putting any out", and ""$60,000 is a good price for that tractor, we've got the cash in the bank, so let's get it". This dynamic is part of why we're done. Mind you, I'm sure I can weed through the tax records and receipts for that information, but the list you just gave me is exactly what I needed to make sure I get all the info that I need. Now put it down on paper. Then do it again and add all the tiny details you didn't think of the first time. I prefer the paper spread sheets over computer because I can see it all at the same time without scrolling up or down. Just my preference.

Would you sell calves only? Registered stock or grade? Selling registered bulls? Heritage breeds or the souped up double muscled breeds? Grass fed or selling to feed lots? Organic with no antibiotics, chemical wormers, or pump 'em full of both? Private sales or auction barn? Buying hay or cutting your own? We currently run grade angus and angus/hereford cross which we keep til they're about 15 months old and sell at the auction barn to feedlots. We'd prefer to be just selling calves, because yearlings are difficult to manage in our current operation. We aren't organic, but we don't use fertilizers (other than manure cleaned out of the barns) herbicides or pesticides on the land. Cattle get vaccines at branding and breeding, a dose of Ivomec in the fall, antibiotics only when sick. DH and BIL, by themselves, cut 800 acres of alfalfa every summer, and we're pretty sick of that too. Our preference would be intensive grazing, stockpiling forage, and letting someone else put up hay on shares on whatever hay ground is part of the property we purchase. The pressure that comes with putting up 800 acres that's all ready at the same time is part of what we want to be done with.

What kind of grasses and forage? Snow? Year round grass? We've gotten answers both ways on the year-round grass, which leads me to believe that it's possible some years, but you'd better have some bales in reserve just in case. Grasses seem to be primarily fescue, and it's accompanying problems. Snow should be less, and melt off faster, than what we've been used to.

What exactly is your product and who are you selling to? Identify your market. We are tossing around the idea of calving twice a year and selling weaned calves at the sale barn, so as to balance risk and cash flow a little better than the once-a year plan. In a perfect world, I'd like to be selling grass-fed direct to the consumer, but the current economy isn't ideal for that. Maybe something to work toward over the years

Cattle only? Or mix other livestock too? Sheep, goats, hogs, chickens? Any nut/fruit/vegetable sales? We know cattle, DH hates sheep, we aren't knowledgeable about goats, don't do hogs for religious reasons. I like my chickens, but am not excited about the prospect of either having customers showing up at my home at all hours (we homeschool a 5 and 7-year old) or jumping through hoops with regulatory agencies. Any sale of fruits/nuts/etc. would be a sideline, if at all. I've got a very small herd of Dexters, which could in time bring a little cash if I can get time to train the heifers for milking. Basically, in those first 3-5 years, it's going to be DH and me doing it all, and we don't want to make the mistake of spreading ourselves too thin.

Get the almanac for the state you are moving to for a per capita income level for the area you want to buy a ranch in. Also the state almanac will give you population demographics county by county. It would be kinda stupid to set up a CSA, or direct sale ranch if there is not enough people in the area to buy it from you. We've researched and visited the area we're thinking of relocating to (Ozarks) and know that direct sale or CSA is unlikely to work. I can't recall the average household income off the top of my head, but it's low. Fortunately, so is the cost of living. Selling at the livestock auction is the business model we know, so it's what we'd be doing the figuring to determine if it'll work for us.

When you leave the ranch partnership, will you be "bought out" or will you still "own" a piece of the action. Will you be leaving with working capital or just a pat on the back and "good luck"? Will you get a share of future proceeds from the brothers ranch? What about mineral rights? If your DH and his brother own the mineral rights, then don't give up his half. Ever. It looks like we would be selling off everything but the cows and mineral rights and split the proceeds. We would not buy more land than we can pay cash for. What we've got now was passed down without debt, and that's a burden we like living without. The mineral rights are currently leased, and there's potential there. They're drilling holes all around us, but haven't gotten here yet, so it's not something to literally bet the farm on.

What is the climate where you want to move to versus where you live now. Sometimes cows have a hard time making the climate/grass/forage change and fail to thrive, sometimes they do even better than where they came from. Will the size of property you can buy sustain you or will one or both of you have to work off the ranch? What is the job market and what are your skills? In all ways that I can think of, the climate is better where we're heading (Ozarks) vs. where we are (northwest South Dakota). 4x the annual rainfall, longer growing season, milder winters, less snow cover etc. Neither of us currently works off the ranch, and if it doesn't pencil out to continue that way, then we'll need to re-evaluate our destination. DH has a teaching degree, I have a background in retail. Either of us could get a job off the farm, but that's not the lifestyle we want for our family. We should be able to buy enough ground to graze 100 pairs, based on the 3-5 acres per head rule of thumb. Depending on what we can sell the current place for, we may be able to buy twice that amount of land and be understocked to make the year-round grazing concept more reliable. It's going to depend on what we can close a deal on within 6 months of selling this place. Capital gains tax is going to be an issue otherwise.

That is all I can think of right now. Toss this around and post some more of your ideas.

 

[baymule]

I just remembered what the SBA office is called in a college, it is a SBA Development Center. They help people put together a business plan to submit for a SBA loan-which you don't need.

Subscribe to this magazine

http://www.acresusa.com/magazines/magazine.htm

Tons of good information for people wanting to have healthier land and healthier animals and plants.

Definitely get copies of past tax records, receipts, anything you can lay hands on. You have been working in the dark-hard to know what works and what doesn't.

At some point, you might want to upgrade to registered cattle. That gives you a bull market and calves as well. The twice a year calving sounds like a good idea. No matter where you are, there is always people who can afford organic food. You don't necessarily need to be certified, but if you have a natural raised calf with out chemicals, ivomec, vaccines, grass fed-you can find a market for it. In towns, there are lawyers, doctors, business managers, etc that can afford a premium product. That's something to think about for later. I buy a calf from a friend, straight out of the pasture. It goes to the custom butcher and we know what we are eating. He doesn't butcher it as that would lead to all sorts of legal red tape. Here in Texas, if you own the animal, you can haul it to a meat processor and avoid the USDA and their rules. I pay my friend for the calf, he takes it to the butcher, I tell the butcher how I want it cut and wrapped, pick up the meat and pay the butcher when it is done.

Are your Dexters registered? They are pretty pricey, maybe you could develop a market for them too.

I am sure you have heard of Garth Brooks. His parents required him to get his college degree before embarking on his music career. His degree? Marketing. He marketed himself. In the height of his career, he made 40 million a year. The point of this is MARKET YOUR FARM. Every line you stand in waiting to check out has potential customers. Tell everybody what you do. Tell enough people and you will find customers.

As far as the chickens go, you can deliver eggs to your customers. Again, every town has professional people. Guess what? They all EAT! A weekly route could prove to be lucrative, especially if you could direct sell a calf. If that is too much meat, offer to split it and sell the other half to another customer. MARKET. MARKET. I think it is a federal law that allows you to home process up to 1,000 chickens for meat and direct sell them without the USDA inspection. Pasture raised chicken commands premium prices.

KEEP GOOD RECORDS! If you don't know your costs, you don't know if you are making a profit or loss. Do a statement every month, then a quarterly statement. Tweak it as you go along. You can do this.

 

[~gd]

BAYMULE has given you some excellent advise I think, I am not a cattleman. I think the first thing you need to determine is the basis price of the things that would be sold in the move. Capital gains taxes can eat you alive in selling land. Check out the rollover time you mentioned that really applies to your principal residence, but does it also apply to all the land on a big rance? Have a check run on how the land was passed. One way resets the basis price to 'fair market price' at the death of the previous owner, other ways don't so if great grandpa bought the land for a dollar/acre decades ago and it is sold now for $1000+/acre you could have a huge capital gains tax. I hate to say it but you need an expert [CPA or tax lawyer] you mentioned a partnership. Is it a fully legal partnership, or just a family agreement? If you are breaking up you might want to have some one look at the books....
You mentioned running cattle as pairs. my dumb question is why? Is because you want all the young at the same time? Even then it seem like a lot of bulls.

 

[k15n1]

BAYMULE has given you some excellent advise I think, I am not a cattleman. I think the first thing you need to determine is the basis price of the things that would be sold in the move. Capital gains taxes can eat you alive in selling land. Check out the rollover time you mentioned that really applies to your principal residence, but does it also apply to all the land on a big rance? Have a check run on how the land was passed. One way resets the basis price to 'fair market price' at the death of the previous owner, other ways don't so if great grandpa bought the land for a dollar/acre decades ago and it is sold now for $1000+/acre you could have a huge capital gains tax. I hate to say it but you need an expert [CPA or tax lawyer] you mentioned a partnership. Is it a fully legal partnership, or just a family agreement? If you are breaking up you might want to have some one look at the books....
You mentioned running cattle as pairs. my dumb question is why? Is because you want all the young at the same time? Even then it seem like a lot of bulls.

You need a certified accountant but you're only in charge if you do the bookkeeping yourself. The accountant is basically there to help you avoid tax problems and keep you in the clear as far as business law goes. But the only way for you to keep track of your business is to keep the books.

 

[baymule]

~gd, pairs means cow and calf. Not a dumb question if you don't know something. When planning for pasture, you have to keep in mind that the cow will have a calf and it also will eat grass as it is nursing on it's momma. Then when weaned, it will graze full time.

 

[Ceilismom]

BAYMULE has given you some excellent advise I think, I am not a cattleman. I think the first thing you need to determine is the basis price of the things that would be sold in the move. Capital gains taxes can eat you alive in selling land. Check out the rollover time you mentioned that really applies to your principal residence, but does it also apply to all the land on a big rance? What little reading I've done indicates that it works the same way with selling a business vs. selling a house. If you purchase within 6 months, and basically are just trading one business property for another (could be trading a bakery for a laundromat) then you're OK, if you get it done within the specified time frame and follow all the rules to the letter. I have yet to find out how that works with things like the cattle, equipment, fencing etc. Have a check run on how the land was passed. One way resets the basis price to 'fair market price' at the death of the previous owner, other ways don't so if great grandpa bought the land for a dollar/acre decades ago and it is sold now for $1000+/acre you could have a huge capital gains tax. [I hate to say it but you need an expert [CPA or tax lawyer] you mentioned a partnership. Is it a fully legal partnership, or just a family agreement? The partnership was formalized in about 2009 because the bank insisted on it. The agreement is as bare bones as you can get, with no provisions for terminating it, passing it on, buyout upon decease of a partner, or anything else that would make this easier. If you are breaking up you might want to have some one look at the books....We've finally got an accountant that I trust, and he grew up on a cattle ranch, so I believe he'll be able to help us navigate through the financial aspects of breaking this mess up, or if it's beyond him, he'll know who to send us to for help. It's mostly the "Once we're out of this mess, and we know how much money we've got to work with, how do we determine how much we'll need to reserve for operating expenses to get us through the first couple of years, while paying cash for as much land as we need" aspects that I'm struggling with right now. I'm not a part of the partnership, and my name isn't on the deed to any of the land, by my own choice, so I have zero power in getting that all sorted out.
You mentioned running cattle as pairs. my dumb question is why? Is because you want all the young at the same time? Even then it seem like a lot of bulls.

We've got about 25 bulls to 325 cows. Still a bit overstocked on bulls. I hate having them around.

The earlier parts of your post, well, that's the part of the situation that I didn't want to get long-winded about. It would be a novel, and you'd spend the rest of the day shaking your head. Suffice it to say, I can't get out of here fast enough. It's been a long 9 years.

 

[~gd]

Yes i undestand the complexity of the the breakup and I really don't want to get in too deep either. Mine was a forced break up by the State [highway through house and outbuildings] the state told me that I could do a like for like trade and avoid Capital Gain taxes. They only found one property that they thought would qualify and that was in timberland. I pointed out that growing trees for lumber wasn't ' like for like' cleared land farming. I found a cleared land place with a much smaller house and no out buildings closer to the city so the land was more expensive. I took the plans to the district engineer and he approved them. The state was working with the Feds because the highway was was part of the Interstate highway and this was back when Obama was pumping money into infrastructer trying to turn us back to recovery. I had to rush because the pressure was on to get the project started. Short story 3 years later both the IRS and the state had their hands out looking for capital gains taxes +interest +pentalies. The district engineer had no authority to approve the deal, The new house was smaller and cheaper and the land was smaller but more expensive. I had pumped just short of $50K of my money into the deal and I sure hadn't planned for capital gains. They treated the house and land as seperate deals and found they could tax both! Just a warning cheap legal help becomes expensive If they don't really know what they are doing.
Another hint is get advise on how the deed on your new place is worded it can make a huge difference if either of you need lomg term care or if one should pass.
The ozarks are in tornato county make sure that records are backed up and keep one set in a safe storage place.
I I paid cash for my place but set a line of credit account secured by my property to cover over looked expenses.[my tornato] the banks were fighting to set me up and even paid for the 'closeing costs' As long as I didn't owe them any money they had no claim on the house. When the storm hit I tapped it freely to get the jump on the insurance co {they allways drag their feet on paying off claims] repairs are done faster and cheaper for immediate cash then when waiting for insurance.
Good Luck!

 

[Ceilismom]

~gd, I appreciate your advice, and your sharing what you went through, very, very much. There have been so many penny wise and pound foolish decisions made over the last 9+ years that I'd like to think they've learned their lesson. I sure wouldn't like to bet on that though. I will take it to heart and do all in my power to ensure that we don't get burned by any more foolish decisions.