“Applying Sound Business Principles to Feedlot Management”

Kendal Thompson

DPI GLOBAL

 Much effort has been placed on understanding the principles and concepts that have been essential to the success of individual businesses over the past several decades. It is the intention of this presentation to help identify how a limited selection of those concepts can apply to the Cattle Feedlot Business.

 The following concepts will be discussed:

1. The evolution of agriculture and the change that has occurred in the skill sets required for successful managers.
2. The two hats of management typically worn by feedlot managers.
3. Key financial measurements helpful in assessing the level of performance improvement in feedlots.
4. Modeling the financial impact of feedlot decisions.

 Changing Skills in Agriculture:  As the face of agriculture has changed over the past several decades, so have the skills required by its managers. The schematic shown below identifies several of those skills. The newer acquired skills are towards the top of the list.

 The Two Hats of Management:  Management decisions are often divided into two functions, capital management and operations management. It is helpful for managers to understand the difference between the two functions and approach each function with an appropriate mind set. Some businesses have different people serving the two functions while many times in production agriculture the same person serves both roles.

Capital management’s function is to manage long term decisions and directions of the business including strategic alignments, capital acquisition, and investment management. Operations management is concerned with more day to day, front line production issues.

Financial Measurements:  One of the common score boards for business managers lies within the accounting system. Some of the key measurements can be found in the Income Statement and the Net Worth Statement. The Income Statement provides both Net Farm Income and Capital Debt Repayment Margin. The Net Worth Statement provides insight into the financing of assets used by the business. Understanding the relationship between debt capital and equity capital is helpful in managing a business. Finally, two other key measurements are generated by using both the Income Statement and Net Worth Statement to calculate Return on Assets and Return on Equity.

Understanding the “score board” and its measurements is important in assessing the impact of management decisions.

Modeling Financial Impact:  Most businesses are faced with several options during the decision making process. Modeling the expected financial outcome of those options is an important concept for many successful managers. The process should include:

1. Replicating the current situation.
2. Calculating the impact from changing one variable at a time.
3. Model the alternatives and prioritize based on your specific business.
4. Develop and communicate an action plan to implement decisions.

Applying sound business principles to feedlots is more essential today than ever. Reducing the estimated outcome of a contemplated decision is an effective method of understanding the value of taking action!