That was never the argument. I was disputing what Warren was saying and the manner in which he was trying to justify using debt.
The OPM term has been bent and thrown around to justify poor choices for debt and as a way to sound sophisticated.
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The OPM term has been bent and thrown around to justify poor choices for debt and as a way to sound sophisticated.
Travlr
Well-known member
By paying cash you are paying the interest you would be paying to someone else... to yourself. Paying cash is its own form of investment. If you borrow money at 9% you are making someone else money. If you pay cash you are not only saving the 9% that you would have been paying someone else... you are also paying yourself 9%.
You are not wrong, and you need less correcting than some of these business gurus and captains of industry on here that are so un educated and knowledgeable about basic economics, GAAP, tax codes, civil courts, etc. There is no such term in economics as owned money. The one that coined that phrase on here, is basically ignored by most of us. He is obsessed with ending certified angus beef programs, because he thinks if he does, his red cows will bring as much as ho is black calves do. He will work that into every thread he comments on, no matter the topic. Just watch. Another one or two of the nay-sayers, just can't grasp the difference in personal loans and corporate loans. Their comments would actually be true and accurate if we were talking about people borrowing money to buy cattle. We are not...we are talking about corporations buying cattle, and borrowing the money to do so. I can not remember the last time I sold a herd to, or bought a herd for , anyone that paid with a personal check. All have been corp or LLC checks.
kenny thomas
Well-known member
You guys are way too smart for me to keep up on business matters. But some of the ideas on expecting to bankrupt business doesn't agree with me. When you bankrupt the other people loose for just trusting you and your business.
Otha
Well-known member
Sure that all makes good sense. I try to stay a year ahead at least on hay inventory. And i've got quit a few cubes put up right now as well.I would think it would be a very long drive to find a banker that could be trusted for cattle advice! The insurance would be a must have.
If it is a fair amount of cattle you should look at locking in some of your feed cost. A dry few months will make feed costs rocket past the point of leaving any profit.
You are doing the correct thing by looking at your options before you dive in.
Otha
Well-known member
Sound like a good debt to equity balance would work well for you. You could be paying yourself that 9% on any portion of your money you so pleased along with paying someone else 9% on some more money. As long as the operation is making more than 9% on capital you make money of both your money and the debt. Even at 10% return on capital why would you leave that 1% of the table? I will admit the math was much more enjoyable and profitable 2 years ago when interest was 5%.
Dave
Well-known member
Roughly half the BM cows I ran last year were bought with borrowed money. The interest paid on that money figured roughly $19.12 per cow. To say I made substantially more than that per cow would be a gross understatement. Without utilizing that credit I would have made a lot less money.
No one that I saw ever said anything about expecting to bankrupt, Kenny. You'd have to gave a company with strong financials to get a , say, $100k signature note to start with. What we are saying is, if Kenny Thomas took $100k out of his pocket to buy a herd, and things turned south, then you could lose a lot if not all of it. If Kenny Thomas took out a loan for $100k to buy them, and things went south, you would owe $100k on some cows that would not pay much of any of that loan back. but if KT Enterprises INC, or Thomas Cattle LLC borrowed the money , and things turned south, then Kenny Thomas would owe nothing, and would lose no money if the c value of them dropped form $100k to $20k.
Another reason you may do this, is like something I just did. I had about $100k left from these past few deals I have done. I have a friend with a 1969 Z28, 302 high compression , 4 spd, black, every number matches, every piece on it is 100% perfect. I want this car bad. He has told me recently that he is considering selling it, but for more than the appraisal values it at. He said I wouldnt part with it for less than $100k. It is probably worth about $90k. Could price it today at $85k and it wouldn't last 48 hours. So I ran up on a herd of 50 young reg Brahma's,heavy bred ( May due dates) for $2k a piece. Just as sure as I bought them, that very day Chuck would call and say: Come get the Z, I am ready to sell i. If you don't want it its cool...already have another buyer, just wanted to give you first right of refusal". So, in order to keep the money to buy that car free and clear, I let one of my companies take out a loan to buy those cows. So of course, Chuck hasn't told me he wants to sell yet. But I sold the herd in less than 2 weeks and paid the loan off after 30 days. I want them to make a little interest. they don't like making a loan and you paying it off the next day or two. Company made $10k- 10% profit off the cows and paid $333.00 in interest.
The majority of folks are taught from a young age to stay out of debt and pay things off quickly or save and pay cash. I know people that make really good money and are absolutely terrified of being in any kind of debt. I operated this way to an extent for about 15 yrs and when I did my financials for the first time it was an eye opener for me. I was doing good and making good money but just wasn't building any wealth. For the last 15 yrs I've stuck my neck out way further than I should and it's really paid off for us. Now that I'm were I want to be I can spend the next 5 or so becoming completely debt free and be in a place I'd never been had I just kept saving and poking along. It's pretty simple if you don't like debt don't get any but if you like making money and progressing fast I'd suggest getting a good banker. To each his own but don't say it won't work because it will.
Back to the original topic....It's not hard to make money in the cattle business. You just have to pay attention to the bottom line and not be lazy. It's also very very important to understand that spending money even if you have to borrow it can and will actually make you money in the cattle biz. In fact I'd say thats probably 1 of the top 5 things in actually making cattle work for you. Remember....any idiot can feed a cow.
Back to the original topic....It's not hard to make money in the cattle business. You just have to pay attention to the bottom line and not be lazy. It's also very very important to understand that spending money even if you have to borrow it can and will actually make you money in the cattle biz. In fact I'd say thats probably 1 of the top 5 things in actually making cattle work for you. Remember....any idiot can feed a cow.
@Brute 23 , I was about to answer your post, and it all of the sudden disappeared! I didn't think we could delete a post....I have looked and looked for a way to do it. I know Mods or Admins can, so you must be one? anyhow to answer your disappearing question: For a company with no assets to get a $100k loan , it would have to have someone personally guarantee it...co-sign it.. that had the collateral to cover it.
kenny thomas
Well-known member
Warren, the issue I have with your theory is that no matter whether it's me personally or a company I have formed I'm old school and feel I am responsible for my debts. You state again that if the company looses money I would not be responsible. If someone looses money they should pay it back, period.
My cattle loan identifies as a school loan !
Sorry conversation was getting seriously serious.
We don't have any debt. Debt is not bad when used correctly. My 6 companies were all made by borrowing bank money. Obviously we pay off as soon as possible.
We use loans from owner's now if any money is needed.
However if a client owes a large amount of money in excess of what I can cover, then we will hit the bank money line.
I don't mind short term debt....but in today's market I more cautious about stacking debt.
Sorry conversation was getting seriously serious.
We don't have any debt. Debt is not bad when used correctly. My 6 companies were all made by borrowing bank money. Obviously we pay off as soon as possible.
We use loans from owner's now if any money is needed.
However if a client owes a large amount of money in excess of what I can cover, then we will hit the bank money line.
I don't mind short term debt....but in today's market I more cautious about stacking debt.
That CT Supporter Banner gives you additional features or you can always hit report and they will delete it for you.
How are you using some one else's money if some one has to co-sign or personally guarantee it or you have to have assets?
How are you using some one else's money if some one has to co-sign or personally guarantee it or you have to have assets?
We are right back where we started at, you are still using your money.
This has been the most helpful info. I know Jeanne and I have watched her at work. I've watched her herd and her successes. If I have a question I always want to ask Jeanne. I told my husband once, "When I grow up, I want to be like Jeanne!"
Thanks Jeanne. I'm sharing this with my kids. They all want to continue in the cattle business and say to me, "But how do you make money at this?" We have limited land resources so commercial anything is out. My question: advertising. How do you get the word out that you have heifers/bulls/steers for sale? Im not a computer person so that works against me.
I understand what you are saying. You are not legally responsible to pay back a loan a company you own stock in secured. You may feel a personal. moral obligation to do so, you are not legally bound to do so, and creditors can not go after your personal assets. But say you did have a company that borrowed money and because of a variety of things, the company did not have the funds on hand to pay the loan off at maturity. If you wanted to pay it, and keep the company alive and viable, then what you could do is loan the company the money to pay the loan. You wouldn't want to run to the bank and get your money out, to pay that company's loan. If and when the company makes a profit use that money first to re-pay you plus interest. Or, you could just let it pay you interest only, and keep renewing the loan. If you set the interest rate at say 8%, you'd be as well off or even better than having it in a CD or any other kind of liquid account.
I don't know anyone that borrows money via a company they own, with the intention on defaulting on it. These are just legal business and tax strategies that everyone uses, and has existed as long as corporations have in the US, and it is just good business sense to make use of it. I mean, you could take out a personal loan to buy a house, if you wanted to. instead of a mortgage. Of course an honest loan officer would try to explain to you the foolishness of doing so. Interest on a personal loan is higher and is not tax deductible like a mortgage is.
I have sold someone a cow or two or maybe a bull, for cash money, but anytime someone has bought a herd, or a group, they have always paid with a certified or cashier's check from their company or LLC. I don't think I have done a very good job explaining this. Too many people are not understanding (and of course, there is the handful that will argue with me if I post today is ground hog's day, but most people ignore them like I do.. @Mountaintown Creek Ranch , @GoWyo , @Lucky ...help?
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@Warren Allison
You are screwed up like a soup sandwich. You need to stick to cattle and leave the legal advice to the pros.
I'm guessing you are trying to repeat what you have been told and you are butchering it.
You are screwed up like a soup sandwich. You need to stick to cattle and leave the legal advice to the pros.
I'm guessing you are trying to repeat what you have been told and you are butchering it.
Travlr
Well-known member
It went right over your head, didn't it?
There's a reason large operations can use debt successfully and with less risk. But small operators get sold the idea that debt is easy to manage and has little risk and that's just not true. There are a lot of people buying that, but a majority doesn't mean something is true. A lot of very wealthy people started out minimizing debt and transitioned later when it made more sense. There are also people that have managed debt successfully. But I'm not here to convince you. Just be aware that it's easier to sleep at night when everything you've worked for isn't in jeopardy every night you lay your head on the pillow.
tex452
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I haven't borrowed any money for years, but looking back there's times I should have on certain deals, now it would be worth 20x as much.
Using debt as a tool by a responsible hard working person is an absolute, as long as it is reasonable.
I just hate being in debt personally, so much so I paid off $500k in 7 years when I got in the chicken business, that was working 7 days a week, it paid off really good, I sold out a few years back and bought another ranch.
Thanks for the posts. I have a lot rolling around in my brain I need to do for various reasons and you put some different possibilities out then then what I had thought of. I may need to separate some things into their own unit for ease of transfer as time goes on.I understand what you are saying. You are not legally responsible to pay back a loan a company you own stock in secured. You may feel a personal. moral obligation to do so, you are not legally bound to do so, and creditors can not go after your personal assets. But say you did have a company that borrowed money and because of a variety of things, the company did not have the funds on hand to pay the loan off at maturity. If you wanted to pay it, and keep the company alive and viable, then what you could do is loan the company the money to pay the loan. You wouldn't want to run to the bank and get your money out, to pay that company's loan. If and when the company makes a profit use that money first to re-pay you plus interest. Or, you could just let it pay you interest only, and keep renewing the loan. If you set the interest rate at say 8%, you'd be as well off or even better than having it in a CD or any other kind of liquid account.
I don't know anyone that borrows money via a company they own, with the intention on defaulting on it. These are just legal business and tax strategies that everyone uses, and has existed as long as corporations have in the US, and it is just good business sense to make use of it. I mean, you could take out a personal loan to buy a house, if you wanted to. instead of a mortgage. Of course an honest loan officer would try to explain to you the foolishness of doing so. Interest on a personal loan is higher and is not tax deductible like a mortgage is.
I have sold someone a cow or two or maybe a bull, for cash money, but anytime someone has bought a herd, or a group, they have always paid with a certified or cashier's check from their company or LLC. I don't think I have done a very good job explaining this. Too many people are not understanding ( and of course, there is the handful that will argue with me if I post today is ground hog's day, but most people ignore them like I do. @Mountaintown Creek Ranch , @GoWyo , @Lucky ...help?
And yes for everyone out there I will involve and consult the appropriate professionals before doing anything. I may have to build a flow chart for me to grasp it all.
