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98: Is Your Ranch an Asset or a Liability? · CattleUSA Daily

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  Welcome to the Cattle USA Daily podcast, your go to source for
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  the latest livestock markets, industry insights and the update
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  shaping agriculture today. I'm your host, Lauren Moylan, a
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  passionate advocate for agriculture, here to keep you
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  informed and connected. Now let's dive into today's
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  episode. Welcome to another episode of
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  the Cattle USA Daily podcast. Today we are talking some
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  uncomfortable things and I want to start out with a question.
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  If you had to sell your operation tomorrow, would it
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  help your family or would it hurt them today?
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  We are talking depreciation, succession planning and some
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  mindset realities and the whole concept of if you didn't get it
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  from the title, is your ranch an asset or is it a liability?
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  It's a really hard question to have.
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  And here's the thing guys, we are going to be pretty direct
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  today. Not doom and gloom, but this is
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  an episode about taking ownership and seeing the
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  opportunity could to continue to grow and to continue to develop.
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  So what is depreciation? What do I mean when I say
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  depreciation? What is the definition of
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  depreciation? What does it look like for us on
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  ranches? Here's the thing, depreciation
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  doesn't just mean value loss in ranch terms.
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  Depreciation, it's not just rust on a tractor or depreciation of
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  our products, but it's also the slow fade in value of equipment,
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  fencing, facilities and more. So here's the IRS view.
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  Depreciation is a tax benefit. It lets you write off the cost
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  of certain assets over time, reducing your tax income even if
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  the asset is still technically usable.
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  So, for example, you can depreciate a squeeze chute or a
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  barn over the next 5 to 20 years, even though you might use
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  it longer. And here's the thing, the same
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  depreciation doesn't mean you've saved for replacing those
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  assets. You've just lowered your tax
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  bill, not banked the money for repairs, upgrades or
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  replacement. The bottom line of this guy's is
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  tax depreciation can make your books look better, but it
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  doesn't equal cash in the bank or rising operational value.
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  So here's the thing. Many producers confuse a good
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  tax year with good financial health.
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  Just because on our taxes it looks like we had a good year
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  does not mean our operation is actually sustainable.
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  Does not mean that if everything hit the fan today, our operation
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  would still be successful. I also, outside of depreciation,
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  want to talk about succession. Succession is often looked at as
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  a I'm not ready to retire, so why do I need to talk about it?
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  It's not something I'm worried about.
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  Here's the thing, if you're not planning for the next
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  generation, your ranch may be a ticking time bomb.
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  We never know what tomorrow holds.
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  And I don't want to get doom and gloom on this, but I come from a
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  family, thank God, who has talked about this my entire
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  lives. But you want to know why we
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  taught? We've talked about succession my
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  entire life. It's because my dad's dad died
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  when he was 13. We didn't.
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  They didn't have the opportunity to set up a succession plan.
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  It wasn't put in paper. What happens next?
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  And that is stressful and that is not fun for anyone.
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  So be the person that does it, be the person that asks yourself
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  these questions. Do you have a plan for who takes
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  over if you get in a car wreck, if you die tomorrow, or if you
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  just break your legs? Like if you fall off the tractor
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  and you break 2 legs, who's going to help you take over?
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  Who's going to help you during that situation as well?
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  Next, have you communicated that plan?
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  So cool, you have a plan for who takes over, but have you
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  communicated it? And are you grooming the next
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  generation with skills, not just responsibilities?
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  Actually implementing skills and responsibilities into the next
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  generation is so vital to the success of the operation as it
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  goes through a succession. Succession planning works
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  really, really well when it is done right, but it can
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  absolutely wreck a family legacy when it is done wrong.
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  Everything that you have spent the last however many years
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  putting together for your operation can be gone in the
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  blink of an eye if you don't take succession planning
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  seriously. So here's the thing with the
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  business mindset of all of this. We've talked about this a lot.
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  So we've talked about depreciation.
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  We've talked about how it doesn't necessarily mean that
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  you've had a good financial year of health just because your
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  taxes said that you did. Just because the tax return that
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  you submitted to the IRS looks good on paper and it says that
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  you made $80,000 in profit this year does not mean that you
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  necessarily have great financial health.
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  And so here's the mindset shift that I want to talk about with
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  you guys today. There is quite a few, but the
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  reality, like the whole thing of it is breaking it down like
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  ACEO. Looking at your business like
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  ACEO and remembering that there is a difference between owning
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  cattle and running a business. They can be two things that are
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  running along parallel to one another and can be done
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  extremely well and successfully if done right.
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  But you have to think like ACEO. You need to be tracking your
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  income and expenses monthly, not just annually.
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  At the very least, sit down every single quarter and do your
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  monthly income and expenses. I like to do mine every single
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  month, if not twice a month. If it's been a really busy month
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  or if I find myself with a little extra time or I know that
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  it's going to be a busy end of month, Do it now and do it
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  consistently now. You will thank yourself not just
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  from a being able to compare year over year, but also when
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  tax season comes, you and your tax advisor will thank you.
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  I want you to be measuring your return on investment on every
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  single major purchase that you make.
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  That ROI is so important to continue remembering and
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  continue to look back on as you go throughout your year, as you
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  go throughout your next 10 years.
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  If it's a major purchase and an investment, you need to be
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  looking out on that and measuring your ROI is going to
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  tell you whether that was a safe and good financial decision or
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  if it was some financial decision that we make every once
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  in a while that maybe we should have second guessed a little bit
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  more. And then I also want you to pay
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  yourself a salary if you can. If you are in a situation where
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  you are able to start paying yourself a bi weekly salary, a
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  monthly salary, please do. Your personal finances will
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  thank you. If you are able to start
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  separating business income and expenses some from personal
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  income and expenses and paying yourself a salary, even if it is
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  a salary that fluctuates will help you in this aspect.
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  So here's a question for you guys, is your ranch profitable
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  or are you just staying busy? You need to start treating your
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  ranch like an appreciating asset, not a lifestyle you're
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  surviving in. Look at your business like ACEO,
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  challenge yourself to grow and look at it from a business
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  standpoint of how can we continue to treat this like an
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  appreciating asset and not something that we are just
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  getting by day-to-day. So as we round out this podcast,
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  I have a little quick litmus test for you guys on whether
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  your ranch is an asset or a liability.
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  So I've got 5 questions for you guys that I want you to be so
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  real with yourself on. Sit down, be honest on every
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  single one of these because if you're not honest with yourself,
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  then what's the point of actually listening to the rest
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  of this episode? Like sorry, but you can just
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  leave now if you're not going to be honest with yourself on these
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  next 5 questions and let yourself self assess.
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  Question number one, can your ranch operate for three months
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  without you? If you were to leave today and
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  go on a three month hiatus into the backwoods of Alaska, would
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  your ranch survive without you? Do you have a plan in place If
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  you were gone for three months, is your operation currently
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  building equity or bleeding it? This is probably a situation
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  where you might know this off the top of your head.
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  You might have to go talk to your financial advisor, you
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  might have to go talk to your tax person.
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  You might have to go to your QuickBooks account and go figure
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  this out for yourself #3 do you know your break even cost per
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  head? We've talked about break even
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  before. I want you to know your break
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  even cost per head. In the volatile market that we
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  currently have, it is so important to know our numbers
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  not just from an overall standpoint of our business, but
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  granular know our levels. And so going from a break even
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  cost as an operation to a break even cost per head is actually
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  going to be quite eye opening for you.
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  Especially when you were able to take your expenses and your
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  costs elsewhere such as feed, hay, land, equipment and break
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  that down to a per head cost. It is very eye opening and it's
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  eye opening in an aspect from not just a self reflective
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  standpoint but from an expansion standpoint as well.
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  So when you're looking at expansion or different ways of
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  running your business, whether you're expanding, shrinking,
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  whatever, looking at it from a per head cost standpoint is
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  actually really insightful because you can look your
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  operation right now and say, OK, I'm running 200 head and this is
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  how much it cost me per head. I could up it to 250 head, get
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  some more land or dry lot, and this would be my cost per head.
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  And it's cool to see how different operational choices
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  make your cost per head go up or down.
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  So definitely do that. Number 4, is there a written
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  emphasis on written succession plan and preferably signed and
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  notarized? If I'm getting picky and
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  preferably done with a lawyer, is there a written succession
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  plan? Have you written something out
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  for the next generation to plan for the future?
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  If you stopped today, would your ranch help the next generation
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  or would it burden them? That's a hard question to ask
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  yourself that if for the next, for the last 20 years, 50 years,
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  60 years, 150 years, we've been building this ranching operation
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  to be something that is a legacy, something that we want
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  to continue to push forward and grow and develop and provide for
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  our next generation. And then you sit down and you're
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  like, actually I think this might be a burden.
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  I think that this ranch is a liability, not an asset.
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  I think that the way that we have been running this ranch is
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  not helping the next generation, but it is going to hurt them.
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  And when you get out of your own head and you think about the
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  people around you and the people that you were going to hand this
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  operation down to, it makes you be a little bit more honest.
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  Because it's no longer just about you and your life.
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  It's about your kids lives. It's about your non familial
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  succession planning lives. It is about other people around
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  you rather than just yourself. So be real with yourself, and I
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  want you to remember this and ask yourself this question.
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  Is your ranch setting your family up for success, or is it
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  setting them up for stress? No one wants to be stressed.
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  It's not fun. No one wants to hand down a
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  liability, a burden, a stress. You want to set your family up
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  for success. You want it right now, while
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  you're still here, to be a success.
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  You don't want it to be a liability outside of succession
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  planning. So don't let it be.
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  I want you after that litmus test, after everything else we
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  talked about, I can guarantee you almost every single one of
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  you listening to this has something that you can go do,
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  someone you can call a question that you can continue ask
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  somewhere you can dive deeper, whether that be into your
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  finances and you're calling your financial advisor and you're
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  calling your tax person and you're calling your banker and
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  you're digging deeper into your finances to actually get a hold
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  on them and understand them. Or whether you're getting a hold
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  of a lawyer or an attorney and getting that succession plan and
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  that trust setup and everything else that goes along with that.
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  Or whether you're just sitting down and sitting around the
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  kitchen table with your next generation and talking to them
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  about the succession plan or where the ranch currently is.
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  I encourage you to communicate these things.
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  There is power in keeping things quiet, and it gives power to
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  things that don't deserve any power.
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  And it can be really embarrassing.
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  It can be really touchy as far as finances go and where the
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  debt to income, income ratio is of ranching operations.
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  But don't let it be. Don't give that power to
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  something that doesn't deserve it.
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  Because if it has power over you, then you're not discussing
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  it with those around you. So I really encourage you to
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  discuss it with those around you and be the person that having
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  these conversations regularly with the people in your lives,
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  with your family members and with everyone around you.
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  Your team is here to support you.
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  So let them and continue looking at your operation from ACEO
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  standpoint of how can we continue to grow and develop and
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  build this operation to the next level.
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  Thank you guys so much for listening to another episode of
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  the Cattle USA Daily podcast. I appreciate your time and for
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  being here as always, like subscribe, rate, review,
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  subscribe to our newsletter, check out our Cattle USA
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  insurance link. We've got, we have so many
• 14:06
  resources for you guys and that's what we're here for,
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  right? We are here as a podcast
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  providing free content to you every single day, Monday through
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  Friday to be an asset, to be somewhere that you can look and
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  look at this podcast as somewhere where you can have
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  great resources and continue to be educated.
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  So we've got all those resources linked for you guys down below
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  outside of the podcast itself. But if you enjoyed today's
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  episode, I would appreciate you doing all the things to show
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  your love and support. And as always, I hope you all
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  have a great rest of your week and we'll see y'all next time on
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  another episode of the Cattle USA Daily podcast.
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  Have a good one y'all.