Unless you paid cash for an amazing scenic ranch that can bring in loads of tourist money, you must learn from the best if you want to succeed in the ranch and cattle business.
- The most obvious of all the tips for success is to seek advice from, and put together a successful and experienced management team. You need honest men or women who know the ins and outs of the ranching game. A good team might include a financial specialist (accountant), a cattle specialist who understand the economy of scales, and a land speculation specialist. For example, in Arizona and the arid southwest, an experienced ranch manager would know that most cattle ranches need to have at least 1000 head of cattle to break even.
- It may be wiser to be in the land and cattle business than just the cattle business. What does that mean? Well, depending on the land and the price of beef, it can be difficult to be successful on cattle raising alone, so the most successful ranchers have become experts in land value speculation as well. These successful ranches are the ones whose land and production values increase the most in the shortest period of time. It can be just as important to know about land speculation and the real estate side of the deal as it is to know about managing cattle and feed. If you are going to rely on raising cattle alone make sure you carefully consider the following questions: How much debt is there on the ranch? Are the cattle mortgaged? Is there good access to cheap feed? With the cattle prices being as high as they are right now, a rancher can make a good profit on his product if he (she) is a good manager.
- When buying your ranch, pay attention to the production capabilities of your ranch and the cash flow history rather than the acres and location. You want to buy a ranch by the head or the “AU” (by how many cows it can feed and support) rather than by the acre, and the best idea is to find a ranch that is in poor condition so that you can increase the production and the value by a lot in a short amount of time (see number 3 below). You will also want to find out what kind of cash flow the ranch has per head which means how much money is typically left over after all the expenses are paid (beside the land payment), and then try to buy a ranch for as low as you can per head. Most ranches sell for at least 20 times the average overall cash flow, but if you are patient enough and not afraid to fix up a few things, you might find a ranch for as low as 10 times the cash flow. In order to effectively manage the land and the cattle businesses, you will want to use the enterprise accounting method.
- Try to find a fixer-upper ranch where you can increase the carrying capacity and production by effective management techniques such as sub-dividing pastures, etc. Remember that if the government has classified the ranch as being in poor condition due to reckless management, exhausted pastures, and neglect, you can probably turn that around with effective feeding and management techniques.
- Keep your capital investment as low as possible. Too many ranchers invest a ton of money on fancy new equipment and things that they could simply get by without. Those who try to keep up with the Jones’ can quickly eat away all their profit.