The beginning of spring represents a busy time for most ranchers. Setting aside time for strategic management or working on the business is seldom considered. This makes it difficult to decide where to focus management efforts. Additionally, it’s no secret margins are tight and beef businesses operate in a very different environment than in the past (i.e., fuel costs and land values relative to cattle prices). Benchmarking could help identify those critical areas (production, financial, cash flow, etc.) where management time should be spent to ultimately improve profits. It’s not a new concept but one that deserves more attention. Since benchmarking is key to more effective management and attaining profitability goals, here are a couple of considerations to help improve your bottom line.
1. Consider collecting good data: Accurate and comparable financial and production records are critical to performing a benchmarking analysis. A standardized performance analysis system (i.e., SPA – standard performance analysis) is available to help guide cow-calf producers.
An accrual adjusted accounting system (i.e., not cash accounting) should be implemented for enhanced decision-making ability. Inventory adjustments to the current cash accounting system is a simple place to start. Consider hiring someone with accounting skills or becoming involved with a SPA-type program.
2. Consider knowing what the data means: It’s not enough to just collect good data. Data should be transformed into management information (i.e., ROA, asset turnover ratio, etc.) that can be used to help make strategic decisions. SPA provides a platform for an integrated analysis linking financial and production performance.
It is recommended to complete this annually. Use some caution when utilizing only one year’s worth of data; three to five years of data provides a stronger benchmark. Consider studying the numbers and results often to better prepare the ranch for uncontrollable events (i.e., drought, market volatility, etc.). Work smarter, not harder.
3. Consider using data to set goals: Essential to setting goals is understanding the ranch’s current performance tracked over time. Develop attainable targets for a balanced set of key performance measures (specific to your ranch). Consider using benchmarking analysis, experience and research. Ideally, work on strategies to accomplish these targets before the year begins.
Then simply track actuals, compare projections, and make adjustments as the year progresses. Utilizing data is the common link among each consideration. Good recordkeeping and analysis requires time and effort. Benchmarking your beef business can help improve profitability.
