Which Enterprise is Making You the Most Money?
When you evaluate each of your enterprises, do you look at how much gross income they bring in or do you look at the amount of money left over after you have paid your bills? I would strongly encourage you to use your net income or money left over at the end of year to begin analyzing the viability of each of your enterprises. You might be surprised which enterprise actually provides you with the best net income over a ten-year period.
To give you an idea of the opportunities, I have included a chart with a comparison of two ranches. The first is the Noble Research Institute Coffey Ranch and other is a sample ranch called Buck Doe Ranch. It compares annual returns from the recreational lease and the cow-calf enterprise.
As we analyze the recreational lease on a per cow basis, we find that the return on the Buck Doe Ranch recreational lease is virtually the same as the average return from the 1991-96 Standard Performance Analysis (SPA) for Oklahoma and Texas. What this means to me is that some operators have the opportunity for additional return from recreational leases. With the risk of income variation low and very few expenses, we should have a stable yearly inflow of cash with a slight risk.
As you allocate time and resources to the various parts of your operation, be sure to evaluate how much money each enterprise will return to you. Also, look at the risk of each enterprise and the long-term outlook for that enterprise.
If you have any questions about enterprise analysis or recreational leasing, please give Russell Stevens or me a call.