Knowing ranch numbers is a critical component of turning a profit. But knowing the numbers is more than following the rules for tax season and keeping the IRS happy, it’s about practicing managerial accounting too.
“What I like to focus on, especially at Ambrook, is managerial accounting,” says Shannon Emley, a CPA on Ambrook’s product operations team. “And when you’re getting to that side of things, the rules are still important, but really it’s clarity for decision making for your business.”
Emley grew up around agriculture in western New York. Today, he works at Ambrook, helping producers better understand how to use financial information to make short- and long-term decisions.
Managerial accounting starts with timely tracking of all transactions and which enterprises they belong to.
Emley says, “I know that can be a big barrier, but having that straight is really the foundation for being able to make some of those more advanced decisions.”
Taming the Transaction Avalanche
He encourages ranchers to reduce the overwhelm of starting this process by investing in software that works for them and automatically brings all transactions from bank accounts and credit cards into one place. Once transactions are tagged and categorized, ranchers can begin to see a real-time picture of finances as well as which enterprises need to be changed, grown or dropped.
“Maybe you find out one of those business lines just really isn’t profitable,” says Emley. “So from there you can start thinking about, well, can I make it profitable? Are there more revenue opportunities here? Are there costs that can cut? Or maybe you say, ‘Yeah, that’s just not worth it to me.’”
One example is raising versus buying hay or other feedstuffs. Tracking inputs and expenses for haying as a separate enterprise from cattle allows ranchers to see both the true cost of production for the hay enterprise as well as the true feed expense for the cow-calf enterprise. It allows for decisions to be made out of fact instead of emotion.
He says, “You probably can never completely remove the emotion, but as you get the numbers that tells a story, and it at least can go alongside of the emotion.”
Haying is only one example. Managerial accounting can be as simple or complex as ranchers desire. A starting point can be splitting cattle transactions from crop transactions and later on more detailed tracking can occur for specific groups of purchased cattle, ranch projects or even specific equipment.
Emley concludes, “To start, pick a question or two that you want to answer that’s most important to you and build your system so that you can track that and make decisions on that.”
Listen to the full conversation on the Cattle Conversations podcast.
