April 16, 2012
Time to “Bullet Proof” Your Financial Statement
Most of us “get” how important it is to conserve cash during good times in order to ensure we are able to weather the financial storms of leaner times. But this past March 13 2012 I had the opportunity to hear it and much more from one of the most respected financial consultants serving the livestock industry–Moe Russell of Russell Consulting Group. It was during his presentation at a meeting and facility tour sponsored by the Coalition to Support Iowa Farmers the Iowa Cattlemen’s Association the Iowa Beef Industry Council and our company - Summit Livestock Facilities. Moe was quick to point out that it’s not just about saving for a rainy day it’s about being financially prepared to take advantage of the opportunities that leaner times will bring. He stated “For example we know that current corn margins are not sustainable. And when they cycle down so that the price is close to the cost of production (as they always do) producers with the financial strength will be better prepared to increase planted corn acreages and reach economy of scale in their beef operations while those less prepared will need to scale down or find new businesses.”
Moe call the process “bullet proofing” your financial statement. What that means is conserving cash and not taking all the profits possible during good times to that your equity in the operation increases (to at least 60%) and so that your working capital is at least 50% of gross revenue for your feedlot operation. The key says Moe is keeping fixed costs low and improving operational efficiency. As a case in point Moe shared with us the financial analysis he and beef producer Brent Lorimor prepared before making the decision to invest in a new monoslope indoor beef feeding facility. Working through reasonable expectations for costs and income Moe sited several reasons why Brent’s decision to invest in a monoslope was a financially prudent one . . . improved cattle comfort for better feed efficiency reduced labor costs and improved animal health topped Brent’s list. “At the end of the day” Moe stated “Monoslope beef barns work to improve potential for increased profits now as well as in the leaner times to come. But right now is a good time to consider these kinds of investments for many beef producers.
A few months ago Moe produced a paper for us on financial feasibility. It along with other related materials is available on this website. You can also get connected to Moe on this site or by emailing him at firstname.lastname@example.org
Ed Leman Beef Specialist