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Beef Insider: Plan for profit
Planning to be profitable is a habit for Meadow Lake, Saskatchewan, beef producers Don and Bev Campbell and their sons. The elder Campbells have managed holistically since the mid-1980s, and their efforts have paid off in sustained profitability.
“Holistic management is about people, land, and money. And it is helping us make room for the next generation,” says Don.
Managing resources holistically has brought a doubling of grass production on their 4,200-acre land base and has lowered per-animal production costs for their 700-cow herd.
The operation now includes the Campbells’ sons and their wives: Scott and Jenna, and Mark and Bluesette. The young couples’ children represent the fourth generation of the family to be involved in the ranch.
Don and Bev’s early efforts in holistic management centered on grasslands.
They built a grazing system based on techniques learned from ecologist Allan Savory, who founded Holistic Management (HM) as a whole-systems framework for resource management and decision making.
Savory cofounded the Center for Holistic Management, and this later gave rise to Holistic Management International (HMI), which is based in Albuquerque, New Mexico. An HM course in financial planning was the next step for the Campbells.
Applying the holistic perspective to economics freed their thinking and permitted them to analyze resources and finances in various hypothetical combinations.
Results were immediate. At one point, the Campbells were borrowing $1 million to stock their ranch with yearlings.
Holistic financial planning helped them decide to own 200 cows debt-free and to custom-graze the balance of the available grass.
“The result was a loan of $0; a $50,000 savings in interest and an income of $10,000 on money we had in the bank,” says Don. “Over the years, we did start to increase our cow herd again and decrease the custom grazing. In the long term, full ownership in the cows increased our income-earning capability.”
In time, Don became an HMI-certified educator. The Campbells now travel throughout Canada presenting training sessions on holistic management.
The process of holistic management begins when an operation’s stakeholders set a three-part goal.
- Quality of life.
This statement describes the individuals’ values and desired living and working conditions.
- Forms of production.
This describes what can be produced to create the life envisioned, including levels of desired profitability.
- Landscape Description.
“We described what we wanted our ranch to look like in 50 to 100 years,” says Don. “We described, too, what we wanted our community to look like in 50 to 100 years.
“All decisions we make must carry us toward our three-part goal,” he continues. “It’s like our North Star; it gives us direction in our lives and in our business."
Identifying and addressing possible logjams is part of the overall holistic financial planning process. A logjam could be a people problem or any other obstacle blocking individuals or the organization from meeting goals.
The annual financial planning process begins with a gross profit analysis of all the enterprises.
“We calculate income per unit minus variable expenses directly associated with each enterprise,” says Don. “We leave out overhead expenses. Our overall production goal is harvesting grass, and we want to choose the enterprise that makes the best use of our resources.
“With holistic financial planning, we’re always working in the future, anticipating what’s going to happen,” he continues. “If we project a loss, we replan until we come up with a plan that is profitable. Since we are working in the future and the future hasn’t happened, we can create the future we desire.”
These decisions shape the context for the financial-planning process that carries them through the production year. The plan comprises eight steps.
1. Draft a new worth statement.
Developing this statement shows assets minus liabilities. “We need to know where we are in order to measure change,” says Don.
2. Plan a year’s income.
“We plan a weight, a date, and a price,” Don says.
3. Set a profit goal.
“Rather than waiting until the end of the year and hoping there’s money left over, we decide in advance how much profit we would like for the year,” says Don.
The profit is defined as an increase in net worth. Profit is a return on investment and a return to management after all expenses including living expenses have been paid.
4. Define Weak links.
The Campbells monitor and identify weak links in three business areas: resource conversion, which is the growing phase; product conversion into saleable items; and marketing. “We try to improve in the weakest link or capitalize on the strongest point,” Don says.
5. Plan, sort expenses.
They group expenses into three categories: wealth-generating (W), inescapable (I), and maintenance (M).
The wealth-generating expenses function like investments. “These expenses improve the weak link,” says Don. Inescapable expenses are unavoidable, such as taxes on land.
The maintenance expenses are all other expenses. “We have complete control over maintenance expenses, and we can choose to spend or not spend in this category,” says Don. “By controlling spending in the M category, we can choose to spend more in the W category, which will make us more profitable over the long term.”
Adjusting spending in the maintenance category helps produce the family’s annual profit goal.
6. Do a cash flow statement.
Look closely at the flow of cash coming in and going out of your business.
7. Write an end net worth statement.
Predicting the year’s financial outcome shows the effect on net worth. “If the effect is negative, we replan until we achieve the profit we desire,” says Don.
8. Monitor Results.
“Once a month, we monitor the plan to see if we are on track,” Don explains. “If needed, we do a replan to achieve our goal of profitability.
“We plan, monitor, and control so that we can stay on target and meet our goals,” he says. “We take a long-term view of our operation. We continually ask ourselves if in 50 to 100 years our grandkids will be able to ranch and manage livestock because of the way we ranch today.”