Breaking Even and Cash Collection for Small Beef Business
Jan 22, 2008 11:31 AM
By Sarah Aubrey
Quite simply, if you've decided to start a farm-based beef business, you're looking to make more money or add value to your herd. Making money in this segment of the beef industry is much different than selling live cattle through traditional systems. One way to ensure that your business remains viable once you get started is to have a break-even analysis and a prompt set of cash collection plans in place.
To create a break-even analysis, you need first to know the cost of goods sold. In other words, you need to have a clear understanding of the amount of money it takes you to produce each beef cut. Look into the following:
- What are the prices of the raw inputs? (Live cattle, feed, labor, housing, land rent, etc.)
- What is the cost of materials to develop your raw input into a saleable product? (Processing and packaging fees, supplies, and promotional items)
- What is the transportation cost associated with sales?
- What other costs are essential to produce and sell your beef?
Use the above costs to map out the true minimum or the break even price that you can sell something for and still cover expenses. Realize that you may need to build two sets of minimum prices as the cost to sell at retail and the cost to sell at wholesale may vary. Seasonal costs for inputs may also vary, so factor in those price fluctuations. Knowing your break even proves a stable foundation for deciding on selling venues and marketing opportunities and allows you to say yes to some options and no to those that may cut too deep into your profits.
Money Collections Options
Once you've set a minimum and established price, prompt collection of money is the primary element to cash flow, expansion, and overall health of your business. Wait too long to collect and you may not have access to funds to continue to grow. It's your business, so the type of payment options you accept is entirely up to you, though the way you accept payment can by driven by your target market, if you are selling wholesale verses retail, and the location of your selling activity. Some payment options include:
- Cash-always works, but can be hard to track
- Personal and business checks-can associate a check number with a transaction, but run the risk of a bad check
- Credit card-the machines and fees can be pricey, but your funds are guaranteed when the card is run through
- Trade or swap-an option that works especially well if your cost of goods sold is low or you have a need for what another company is selling
Cash Management Options
Collection timing is as important as the act of selling itself. I encourage you to collect funds as quickly as possible after (or before) a transaction to avoid becoming to extended on accounts receivable. It pays to be a bit assertive about this, and honestly, I've found that direct-to-consumer customers are ordinarily very understanding if you ask for prepayment. Types of cash collection timing include:
- Payment in full upon delivery
- Prepayment for items at time of order
- Down payment of at least 50 percent with order
- Billed accounts for 30-90 days or more (often required when dealing with organizations, not individuals)
A thought on (overdraft) protection
Since you're in the cow business, you've probably heard the old 'the checks in the mail' routine and you've probably been burnt on that a time or two. Setting your meat business up to avoid that problem is great, but sometimes, not matter how much you prepare, people write bad checks.
Another cash flow problem can occur when billed accounts take too long to pay and you've got expenses that can't wait. One way to ensure that you’re bank account is covered and that you can continue to operate is to opt for the overdraft protection feature with your bank account. Many banks that offer business checking are now associating credit cards with a bank account that will “kick-in” finds from a line of credit if funds aren’t available when something clears. This can really help so that if someone writes a bad check on you, you don't inadvertently write a bad check to someone else. One word of caution: this option is still a loan and like most credit cards the fees may be high, so use sparingly and pay it back quickly.
Happy selling and see you next month!
About the Author: Sarah Aubrey is the owner of Aubrey's Natural Meats, Indiana's premier source for gourmet natural beef and pork. She and her husband live in rural Indiana, where they raise beef cattle for her company.
To help farmers position themselves well for the opportunities afforded by today's market, Aubrey shares her years of experience in her first book Starting & Running Your Own Small Farm Business available as of January 2008. It offers everything readers need to know about launching a small agricultural enterprise, from initial start-up to consumer marketing. It is the first in a series of books Aubrey has planned for small farm businesses. For more information visit http://storey.workman.com/products/9781580176972/.Subscribe to American Cowman Update e-newsletter!
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