Ranches need to be investible, whether that investment is monetary from outside sources or even the next generation returning. The good news: knowing if the ranch is investible and making it investible can be accomplished with simple strategies.
Chris Rawley is a co-founder of Harvest Returns and works with producers to help make their operations investible. Harvest Returns was established in 2016 and has deployed roughly $20 million in the ranching space via outside investors and other funding routes.
“I don’t know of very many ranches these days that don’t operate without some kind of outside funding, whether that’s just debt, operating loans or potentially outside investors,” Rawley shares.
The Reality of Modern Ranch Funding
Ranching isn’t a cheap business to start or expand at any point, but especially not when market prices are high. From simple operating notes to investors, outside funding plays an important role in the industry.
When asked what the No. 1 trait of an investible operation is, Rawley’s response is simple: “We’ve seen all sides of many businesses and those we consider investible all have a solid plan.”
Rawley isn’t referring to planning how to raise and graze cattle. He’s talking about the bigger picture of — yes — animal husbandry and land stewardship, but also knowing the balance sheet, profit and loss, marketing plans, goals and how outside funds will be paid back.
“If it’s an equity investment where people are actually taking part ownership of your operation, then how are you going to distribute that money back to them at some point?” asks Rawley. “Have a plan whether it’s through annual distributions, buy outs or selling out.”
Part of a solid plan includes proper documentation of equity.
Rawley says, “The important thing is ranchers need to document and understand what they have and be prepared to present that to investors.”
Transparency and the “Phantom Cattle” Effect
Full transparency is crucial in making any business deal go smoothly, whether it’s between loan officers, family or outside lenders. This includes proper herd records too.
“If you can’t account for your herd, how are the investors going to trust you?” asks Rawley. “And unfortunately, there’s some folks in the industry that have made it worse for everybody else because of their Ponzi schemes.”
Professionalizing Your Books
If record-keeping either for your herd or finances isn’t your strength, hire someone to help you or mentor you. There are a variety of options available in this space of the industry.
“These outside services for bookkeeping services and accountants are not that expensive,” says Rawley. “It’s well worth that investment to get a clean set of books you can present to your banker or somebody else.”
Don’t Go It Alone: Legalities of Agriculture Investing
When it comes to raising finances from outside sources for the ranch, Rawley encourages producers to not go out on a solo path. There are many rules and regulations around this process, and it is governed by the Securities and Exchange Commission.
“Talk to either an attorney or folks like us that have done this, because you can quickly get yourself into trouble even if your intentions are pure and good,” Rawley summarizes.
Listen to the full story on the Casual Cattle Conversations podcast.
