Donnell says ranches are susceptible to unexpected
changes in output and input prices as well as other factors infl uencing the bottom line. “By developing and following a business plan, a producer can better use land, labor, time and other resources needed to develop a profi table farm or ranch operation,” she says. “Often, the action-oriented producer is tempted to
skip the planning stage and focus on daily production activities,” Donnell says. “Even though a ‘getting-the- job-done’ attitude is needed, investment without plan- ning is a risky venture.” Writing a business plan requires an initial commit-
ment of time. “However, the long-term benefi ts to the business are worth the effort,” Donnell says. “A sound business plan is necessary to obtain loans and secure appropriate interest rates. It is also viewed as evidence that your operation qualifi es as a business with the in- tent to make a profi t. Developing a comprehensive busi- ness plan can also help identify markets to attract new customers and increase overall demand and income.”
Short and simple W. Ashley Allen, market president at the Amarillo
offi ce of Bank of America Merrill Lynch (BAML), says a good, concise operating model is important. “The operating model should describe the type of operation you have, whether it’s a cow-calf or stocker program or both,” he says. “You need to list your capital structure and general credit needs.” His colleague Kory Clark, BAML senior vice presi-
dent, adds that some producers or cattle feeders go too far. “Some people bring a ‘book’ when applying for fi nancing,” Clark says. “That’s overkill. If you can keep it short and simple, that’s helpful for the lender.” With the large amount of capital needed to procure
and maintain cattle, “risk management is huge,” Al- len says. “There are so many risks out there; drought, animal health, third-party risk and others. Knowing how you can try to manage those risks using futures contracts or other marketing tools is essential.” Clark adds that lenders will likely want to know
about entities that provide inputs to a rancher. “Many lenders want to know who ranchers are buying cattle or feed from and who they’re selling to down the road.” Allen says many things can determine whether a
producer obtains an operating loan. “Historical and pro- jected performance are important,” he says. “Collateral and equity availability are also vital. But cash fl ow is probably the main consideration lenders look at now.” Donnell says producers should review the businesses’
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March 2014 The Cattleman 87
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