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The Grazier's Gazette

Keep Quality Of Life High Among Your Goals

Cattle standing in a pasture
If quality of life is a key goal for your family, investing money to get the best results becomes easier.

I received a letter recently from a young lady in the Midwest who describes an all-too-common situation: She and her husband have bought land and are in the process of buying more.

Between land payments, equipment payments and operating expenses she says there is very little left over to support the family and none to be set aside for savings or emergencies.

I get inquires like this on a regular basis, so I decided to put some of the advice I dole out to this woman and others into this column. I also address this situation in my new book "The Green Revolution Delusion."

First, I understand the desire to own land. With some people, myself included, owning land is almost a hunger. I don't quarrel with this desire to own land but I do suggest that buying land is seldom the best use of capital and credit when these items are in short supply, as they normally are with young people starting out.

Instead, one of the most powerful and most-often-overlooked principles of holistic management is that at any point in time there is always one place where money applied will yield the best results. Notice that I did not say "yield the greatest return."

That's because other factors such as reducing risk or positioning the business for future gains can sometimes be more beneficial and provide an immediate return on investment.

Most of the time the choice will be much simpler. An example is whether to buy a new piece of equipment, or apply a little TLC to keep an old unit serviceable. Another is whether to buy something that depreciates, like that new equipment, or instead to buy livestock that will appreciate in value.

One key to making good financial decisions is to weigh each decision against what you are trying to accomplish.

Will this expenditure pay for itself and yield a profit?

Will spending this money solve a problem that truly needs to be solved or will it have to be repeated again next year?

Any expense that has to be repeated time and time again should be a red flag warning you an opportunity exists to improve management. If there is no way to eliminate a burdensome recurring expense, perhaps it is time to completely re-plan the business.

If fuel, fertilizer, chemicals and equipment repairs prevent cropping from being profitable, maybe the cropland should be put to another use.

The amount of money coming in is not nearly as important as the difference between what is coming in and what is going out.

In all of agriculture we tend to fixate on production when the real goal should be profit. A vital component to consistent profitability is a well-thought-out financial plan which details what you will spend and what income can be expected. This plan should address every enterprise in the operation separately so you can determine which enterprises make money and which do not. (See sidebar story.)

Another powerful tool from holistic management is the process of goal making. To my mind the most important goal is always quality of life for all of the family. This should encompass what is truly important to you and yours. Every family will be different but most will have variations on topics like financial security, practicing and teaching your faith, plus education and personal growth for everyone.

It is very easy to get so caught up in trying to build a successful operation and to forget some of the things that are really important. For example, having the funds to provide the necessities of life is paramount but having a little for the fun things is important as well.

Even more important is time to be spent with family. Working together can be a powerful teaching and bonding process, especially when praise and appreciation is generous. But don't let childhood slip away without you being there to enjoy it with your kids.

Defining "enterprise"
An enterprise is anything that either generates money or consumes money; most do both.

Typical enterprises for graziers would be things such as:
• beef cows
• purchased stockers
• raised stockers
• heifer development
• hay making

Each enterprise should be credited with income earned and debited for expense generated. The cow herd "sells" calves to the stocker enterprise and "buys" hay from the hay enterprise, and always at fair market value.

If you put thought into the process and use realistic figures, the plan can go a long way toward building a profitable business. Making the figures work on paper does not guarantee success in real life but if it will not work on paper, it is very doubtful it will work in reality.

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