Picture this … You have just been given an ownership stake in a 20-million-dollar business and now also have a seat on the board of directors. The CEO is meeting with the board to reflect on the past year and make the plan for the coming year. What would be the basic reports you would expect them to provide you with? As an owner /board member what reports would allow you to assess the health of the business and be able to critique the plan for the coming year?
I know that I’d expect to see some basic financial statements and I would expect their plan to align with the mission and vision of ownership. I would not want to see tons of detailed financial records or useless tax accounting reports. Rather I’d like to see a balance sheet, showing the current assets, liabilities, and net worth including a trend over the past 3-5 years. I’d also want to see a profit and loss by enterprise, and projections for the coming year. In reality these statements could be as simple as 2-3 pages and be presented clearly to show the current health of the business. The CEO should understand what these documents mean and be able to help me as an owner interpret them and make decisions to help chart the course of the business.
So maybe you don’t sit on the board of a 20-million-dollar business and have a fancy CEO reporting to you, but if you own or manage a farm or ranch, you should have the same expectations as in the above example. If you are the leader of this business then I would suggest you are being incompetent if you are not doing a deep dive on these documents with your ownership team at least annually. It is also on you to present this information clearly and concisely.
The truth is that only a small fraction of farms and ranches do this. Maybe your banker prepares a balance sheet for their needs, and your tax accountant reports to the IRS. Neither of these reports give you, as the manager, the information you need to lead the business. Perhaps this is why most farms and ranches have dismal financial results.
Here is a snapshot of a profit and loss by enterprise and a balance sheet of an example ranch.
These financial statements provide a backdrop for the business strategy discussions that follow. Having the skills to develop, understand, and use these tools are some of the foundational aspects of running any business, including a farm or ranch. Once we have these documents developed we can start to pull them apart to examine the health of the business and build a plan for moving forward. There are key ratios and metrics that can be discussed and strategies developed. If you’d like to sharpen your skills with these tools and learn how to use them to lead your business then our Ranching for Profit School is for you. It’s time to level up your skills as the leader of your business and we can help!
