Accurate farm accounting is critical to understanding profitability, managing risk, and making informed decisions in a beef operation. But not all accounting systems are designed to capture the unique financial realities of beef production enterprises. Depending on the structure and purpose of your operation, implementing beef enterprise (managerial) accounting may be essential to long-term success.
For the purposes of this discussion, beef producers can generally be categorized into four primary production scenarios. Each requires slightly different accounting considerations and reporting structures.
1. Cow-Calf Operations
Cow-calf producers may sell calves at weaning or retain ownership and finish them in an owned or custom feedlot.
2. Backgrounding Operations
Backgrounding programs may be short-term (60–90 days) or longer-term (150–180 days) prior to resale.
3. Feedlot Operations
Feedlots finish cattle to market weight, regardless of purchase weight, and are highly sensitive to feed efficiency and cost of gain.
4. Purebred Operations
Purebred producers raise heifers and/or bulls for breeding stock sales, where genetics, reputation, and long-term sustainability play a significant role.
This discussion is relevant regardless of the type and size of your beef operation. Implementing beef enterprise (managerial) accounting into your farm accounting system is generally dependent on two main factors or questions:
The same managerial accounting principles can be used regardless of the size of your beef operation, but if your operation is a major (i.e., >25% of total farm revenue) revenue source for your business and farming or ranching is your livelihood, consider implementing beef managerial accounting practices.
The same managerial accounting principles can be used regardless of the size of your beef operation, but if your operation is a major (i.e., >25% of total farm revenue) revenue source for your business and farming or ranching is your livelihood, consider implementing beef managerial accounting practices.
There are various accounting software programs available that virtually all meet the minimum requirement of financial reporting for compliance (like income and payroll tax reporting). However, compliance reporting alone doesn’t always provide the insights needed to manage a beef enterprise effectively. If you’re working to strengthen the foundation of your farm financial system, our article on Farm Accounting and Financial Management Simplified provides a helpful overview of how farm-specific accounting and financial management tools support better decision-making.
As you evaluate your current system, consider the following:
For the types of beef production systems previously identified, all may utilize some similar production and managerial accounting principles, but each could be different in customizing the reporting of various production stages (cow-calf, replacement heifer, backgrounding, feedlot, etc.) and support operations (raised feeds, equipment, labor, land/pasture, etc.).
The farm’s available resources will dictate the type of support operations. If your farm also raises crops that can be used for cattle feeding, you have the option of “charging” the beef operation at each crop’s cost of production (determined by managerial reporting) or at a fair market price (opportunity cost) of using the crop as cattle feed. Feed, whether raised or purchased, will most likely be your largest cost factor in producing beef. A myriad of additional expenses are also usually involved (i.e.):
Those expenses, with good managerial reporting, can be recorded, reported, and analyzed with the goal of improving efficiency and profitability.
Depending on your farm or ranch structure, you may also have capital costs involved for land, equipment, breeding stock, and buildings that you will want to include in your managerial accounting reporting. This will help you correctly assess your cost of production to evaluate whether there are adequate profits to fund the replacement of those various capital assets.
These same beef managerial accounting principles should also be considered when preparing a budget cash flow projection for the coming calendar year or production cycle. By incorporating a budget, you can more accurately and confidently make decisions regarding the purchase of capital assets or the expansion of the beef operation. If you’re building or refining your budgeting process, our guide on Farm Budgeting 101: Getting Started is a great next step to help you structure projections and plan ahead with confidence.
Earlier in this article, we categorized beef producers into four types of production scenarios. Now, let’s discuss some of the financial goals or targets of each type.
One goal would be to produce the most pounds of marketable calves at a breakeven cost well below whatever the current market is willing to pay for weaned calves. For example, if (with good managerial financials) you know that your total cost to produce a 500-pound weaned calf is $1,000 ($2.00/lb.), then how much total net margin does your business generate based on the current market?
The main goals are to keep cattle healthy while operating with as low a cost of gain as possible and to have cattle ready for resale to feedlots that recognize the value and are willing to pay for a properly backgrounded feeder. Again, the key is knowing your profit margin per head and the time it takes you to “turn your money.”
Knowing your costs, especially feed costs, and maximizing gains all the way to finished weight is imperative to minimizing your breakeven costs. Successfully purchasing good feeder cattle and having adequate risk management measures in place with marketing finished cattle is key.
Building the reputation of your “brand” is critical to developing new and repeat customers, and knowing your cost of production is just as critical as a commercial cow-calf operation. When economic downturns in the beef industry occur, you can know your break-evens and be able to project the sustainability of your business until better economic times arrive.
Implementing managerial (enterprise) reporting into your beef operation’s accounting system can help you better keep track of your finances and allow for more sustainable, long-term success. For more information about some of the basics of farm finances and what’s important for your operation, download our Financial Ratios Template.
Implementing beef enterprise accounting doesn’t have to be overwhelming—and the payoff can be significant when you begin tracking cost of production, profitability by production stage, and long-term capital needs.
If you’re ready to strengthen your beef enterprise reporting and use your numbers to make better decisions, UnCommon Farms can help. Our team works alongside producers to implement practical farm accounting systems, build enterprise-level managerial reporting, and improve budgeting and forecasting for long-term sustainability.