In a recent Three Secrets For Increasing Profit® workshop I asked participants how much profit they want to make. It is an important question because you can’t hit a target that doesn’t exist and it’s impossible to build an intelligent plan unless you have measurable goals.
But it’s an unfair question too. It’s unfair because it is impossible to know how much you want unless you first decide what your profit is for. It could be for paying dividends to owners (not the same as salary) or a profit share to employees. You could make charitable donations or gift it to people. It could be used to pay down debt, build reserves, invest in infrastructure or expand the ranch. It could be invested off the ranch.
To get people thinking about what they should do with profit I asked each participant to imagine that they made $1,000,000 profit this year. Then I asked them to describe how they would use the money to improve their business and their life.
Nearly everyone said they would pay off debt, build infrastructure or expand the ranch. I didn’t hear anyone say anything about investing any of it off the ranch. Pumping it all back into the ranch could spell trouble.
It might be smart to pay down debt, especially high interest, short-term debt. But it might be even smarter to invest in some income generating investments (e.g. rental units) and use that income to pay down debt. That way when the debt is gone, you still have income. Those off-ranch income generating investments come in pretty handy in drought. Expenses don’t stop just because you’ve destocked.
Investing off ranch also creates better options for management succession and asset transfer. Investments might be used to build a retirement portfolio so that you aren’t financially dependent on the ranch and don’t become a burden to the next generation when they assume management. Those investments could also be used to pay estate taxes or to build assets to pass on to off-ranch heirs, leaving the in-tact ranch to the family members who are going to run it.
If you don’t have a profit target, it would be a useful exercise for you and your family, or your business partners, to work through the exercise I had the workshop participants complete. If you inherited, or made a profit of $1,000,000, what would be the smartest way to deploy it to improve your business and your life? That is a good way to start a discussion about what your profit is for and to establish a profit target. If your ranch, as it currently exists, is not capable of hitting your target, you should probably consider coming to the Ranching For Profit School. We can help you restructure your business to deliver the results you wants.
Ranching For Profit graduates and former Executive Link members, Glenn and Joy Barlow, from Gillette, Wyoming, are ranching for profit. They’ve put some of their profit in off-ranch investments. Listen to Glenn share his thoughts on off-ranch investments.
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