The Rural Voice, 2019-09, Page 31expensive assets,” he said. Also, they
are being subsidized by off-farm
incomes and free labour (because
farmers often do not pay themselves.)
The problem is partially a mindset
– they want to focus on their farm as
a lifestyle, rather than a business.
“We have this notion that if we make
our ranch a businesss it will diminish
our lifestyle. But I’ve seen that when
ranchers make it a business, they
have a better lifestyle,” said Pratt.
Beef farmers should start asking
themselves these questions:
1) What is productive and making
money in my life?
2) Where can I invest to make more
money?
3) Does my ranch serve a customer?
4) Does my farm work for me or do I
work for it.
5) Can I leave it?
6) If I sold the farm would I be
selling a business or an asset?
7) Do I invest in professional
development? (Business owners
should invest in professional
development every year.)
8) Is my average return at least
$50,000 for $1 million in assets?
9) Do I take at least two mornings a
week to work on my business?
10) Do I know when to expand?
11) Does it make a profit?
If the farm doesn’t make a profit,
then it is a hobby and not a business.
If you want a hobby, then you don’t
have a problem. If you want a
business, then you need to make a
distinction between working IN the
business and working ON the
business.
“We make use of the Pareto
Principle (also known as the 80/20
rule which states that, for many
events, roughly 80 per cent of the
effects come from 20 per cent of the
causes) which is where we get the
idea that you need to spend two
mornings a week focussed on your
business,” said Pratt. “And do it in
the mornings when you are fresh. If
you are cleaning pens in the morning,
you are doing your $10 work in your
$100 time.”
During these two business-
focussed morning sessions, the goal
is to look at “gross margin”. Gross
product is the way to measure the
total value of your production.
In a detailed chart (seen on
previous page) he led farmers
thought a flow-chart that started with
profitability and broke into specific
branches of profitability and costs.
On a benchmark farm, overhead
costs shouldn’t exceed 40 cents and
direct costs 30 cents so that profits
can be greater than 30 per cent.
However, the average farm has
overhead costs of 85 cents and direct
costs of 35 cents creating a loss.
This was the part of Pratt’s
presentation that got really technical.
Thankfully, he has an active
YouTube channel. On the
Ranching4Profit YouTube channel,
farmers can view many of the
specific calculations he led farmers
through at the workshop.
While crunching the numbers,
Pratt did offer these last words of
advice:
• Ask yourself why you are a
farmer. This will dictate everything
else. If one of the reasons is to make
a profit, WHY do you want to make
a profit. HOW much? The answers
will help you establish goals.
• Pay yourself a salary. It should
be built into your business model.
• If your profitability has tanked,
there are three things you can do: 1)
change your overheads, 2) Increase
turnover (get more units or add an
enterprise) and 3) Improve your
gross margin per unit (value-added).
• See your farm as a tree and you
as the pruner. Look at what is healthy
and what it not. Then cut off the dead
branches.
• Then make a financial plan using
tools such as a Breeding Herd
Statistics chart, a Stock Flow Plan, a
Cash Flow Forecast, a Livestock
Evaluation, a Trading Account and
ultimately, a gross margin projection
a year in advance.
“We resist change because we are
afraid of the unknown. This is why
we do numbers. It makes the
unknown more known,” said Pratt.
If all of this is too complicated,
Pratt does offer his Ranching for
Profit school in California. RFP also
has consultants on staff.
Ultimately, Pratt says his job is to
ask the right questions so that
farmers can shift their paradigms and
answer their own questions in order
to create a profitable business. ◊
September 2019 27
MANURE APPLICATION
HAY BUSTING
519-719-7711
www.baselineagri.ca
Brendan & Brett Shute
baselineagri@quadro.net
Brendan & Brett Shute
baselineagri@quadro.net
519-719-7711
www.baselineagri.ca