Need Some Advice

[RazorbackRed]

Background: I own only a few cows. They run with my father in laws big herd of 300. have been learning the business from him (lifelong cattleman) for 6 years. I am looking to expand my own herd in the near future.

Oppurtunity: I have a guy that wants to own some cattle but wants me to handle it. He has $20,000 to give me to go do it. I have a lease in place and have a chance to buy some nice 2nd 3rd cows for 900 bucks per. I have the lease for 750 bucks. My cows will be in a 250 acre pasture with 30 -40 head of my father in law. My portion of the lease should get me part of the hay from the lease. Can I make this work for me and the investor and how should i set it up?

My original game plan is to by 15 head at $13,500. feed costs through the summer will be minimal. Just weekly minerals. I am buying the cows off the farm so no need for additional shots etc. Won't need a bull until the fall, but then buy a good bull for $1500. Should have some calves to sell this fall and into next spring. The extra $5,000 goes to winter feeding (hopefully i dont have to buy much hay) and misc expenses. The 5K is back up.

Can I make this work? His share, my share?

 

[mnmtranching]

Why not go to the bank to barrow the money?

It sounds like a good plan, to me I would rather pay interest to a lending institution than have another party involved. Not going to be enough profit to go around.

 

[RazorbackRed]

just not completely ready now, financially.

 

[cfpinz]

Too many cooks spoil the stew. 9 out of 10 you're better off going it alone, there is no such thing as a "silent" partner.

cfpinz

 

[RazorbackRed]

I understand all of the reasons why it is better to go alone, but if you are going to do this, how would you set it up. surely some of you have worked a similar deal.

Also, I think this is a great oppurtunity to learn, without putting my own money at risk.

Lastly, the investor lives 800 miles away, and while i am sure he will want some details he is not going to be involved with any decision making processes.

I guess I just want to know how to work the money and what other costs I am need to take into account.

 

[backhoeboogie]

There is no way to truly advise someone on a deal like this. Investors can all of the sudden need their money back etc. Without knowing the specifics and knowing the investor personally, it is hard to say.

It is always best to go alone. Then you are only accountable to yourself and capable of making all decisions, right or wrong. I could have thrown in with my dad myself but opted not to.

 

[TNcowman]

Any idea what he wants out of this? What % is he willing to give you? Instead of you racking your brain to come up with a plan, you might save you self some effort and just see what he is thinking first. Then you could re-post and get some feedback.
Remember, when putting a plan together, always think how the plan will work if all goes good with the cattle, feed, calves, etc. and then think if all goes not good, cattle die, drought, feed cost soar, etc and maybe you will usually land somewhere in the middle. What are you liable if all goes not so good. Just things to think about.

 

[Brute 23]

I am doing a deal real simualar to that right now. I bought some cattle,,, with their money,,, to stock their place. The difference is they just want their money back and are in no hurry. Tax-Right-Off. I am on salary already. Any money made will go back into the cattle operation after I get a percentage.

Here are some numbers.

20 Cows @ $900ea. = $18,000
1 Bull @ $1500
$19,500

1st calf crop
20 calves @ 400ea. = $8,000

Then you subtract out your expences... say $2,000.

Now you are down to $6,000 profit for the year.

It will take a little more that three years to just pay the cows off.... not counting your pay for taking care of the cows.

Not hardly worth it.... especially if your investor is looking for any kind of return.

But it is not a bad way to get started if your are planning on expanding to somehting larger.

I always say to get a loan for your cattle. You can get a higher... faster... return on your money if it were invested. IF the business can not afford to pay the interest on the loan to get the business started then it is not worth keeping.

 

[dun]

there is no such thing as a "silent" partner.

cfpinz

There is but the prison sentence isn;t worth making one silent

dun

 

[KMacGinley]

I like the numbers in the previous example.

Expenses $2000

Calves $400. each pretty low weaning weights.

Use realistic numbers and be conservative.

 

[Dusty Britches]

It sounds like to me you have an excellent mentor. What does your Father In Law advise? He'll want the best for you.

 

[Hasbeen]

I like the numbers in the previous example.

Expenses $2000

Calves $400. each pretty low weaning weights.

Use realistic numbers and be conservative.

My experience has been that counting on going 20 for 20 in calving may prove to be optomistic.

 

[RazorbackRed]

I think he realizes, just as i do, that I am not going to make a ton of money. I do think he believes that given all of the synergies that we can give each other, and our ability to keep costs very low, that I could make a little money. Not much. He believes I should get 75% of any profit considering that the investor gets to write off the deprication, my labor, etc. he gains from a tax perspective.

My mentor has been doing it for a long long time. he raises good quality calves every year, low mortality rate, and high fertility rate. Keep costs low and make damn sure every cow throws a calf every year, some every 10 months. He is about economies of scale and managing profit from a cost perspective, even though he wouldn't put it in those terms. He would probably get beat up on here for some of the corners that he cuts, but he sucks out every dime.

If i could stick a couple grand in my pocket each fall that is great but it should really let me understand the REAL costs of raising cattle, so i can go in with my eyes wide open when my own money is on the line.

My father in law, like most cattlemen i know, they are more than willing to give you advice on anything, but never ever do they talk about the money. So, that is the part I am lacking knowledge. I mean I can do the simple math, but the tax writeoffs and incremental costs make it difficult for me to understand the real bottom line. I guess I have to learn that for myself.

 

[Brute 23]

I like the numbers in the previous example.

Expenses $2000

Calves $400. each pretty low weaning weights.

Use realistic numbers and be conservative.

You put the #s up there then "O God Of Cattle and Business and Probably Everything Else on Earth." Enlighten us all. :roll:

My scenario got the point across. He can put his own numbers in.

 

[Brute 23]

If i could stick a couple grand in my pocket each fall that is great but it should really let me understand the REAL costs of raising cattle, so i can go in with my eyes wide open when my own money is on the line.

The people I work for have also invested in some other ventures of myne and they have always said.... "As long as you are not losing money the experience is priceless."

 

[Victoria]

I can't help you with any numbers as I don't know costs in your area. If you do decide to do this contact your local Ag. branch, they should be able to help you. Also, how well do you know this investor? Why are they doing this? Do they actually want to make a profit or have a tax write off? The latter is easier for you. Get everything and I mean everything in writing. Don't forget the costs of fencing (including tools), gas, vaccines, minerals etc. Speak with him about who decides when a vet should be called (it subtracts from profits), who decides when to ship all the little things that if left on there own can become big things.

 

[Cowdirt]

I like the numbers in the previous example.

Expenses $2000

Calves $400. each pretty low weaning weights.

Use realistic numbers and be conservative.

KMac, he also sold 20 calves out of 20 cows. I've not been able to do that most yrs.

 

[RazorbackRed]

I think he wants to make a little and write off some. he wants to grow the herd over time. the reason he wants to do it, is that he has a bundle of money and he wants to own some cows....he is a single guy with a bunch of money, simple as that.

all of the decisions are mine. he lives 800 miles away. if i ship a cow for being a pain in butt, then i keep the receipt and add it to the books at the end of the year.

maybe the ag branch has a good contract i could use.

 

[Brute 23]

RazorBackRed: Sorry for having to deal with this in your thread.

I like the numbers in the previous example.

Expenses $2000

Calves $400. each pretty low weaning weights.

Use realistic numbers and be conservative.

KMac, he also sold 20 calves out of 20 cows. I've not been able to do that most yrs.

KMacGinley & Cowdirt:
I teach a school in business if you would like to come I would be glad to cut you a special deal. I can show you how to run figures that allow for bothe best case scenario and worse case scenario. ;-)

Now if you have any constructive comment that pertain to this topic we would be glad to read them... but the childish comments about my numbers we can do with out. Especially when you aren't man enough to explain why you disagree.

 

[TNcowman]

Get everything and I mean everything in writing.

Also, make sure you have in writing the exit plan, just in case you get hurt and can't work them or if you die, how will your wife handle the disposal, etc or if you just decide not to do it anymore. Better to lay it out on the front end instead of having lawyers and the like handle it on the back end. Your investor may have $20,000 to invest but money to most is still money and no one wants to get burned or lose it. Also, don't rush into it so fast that you don't cross your i's and dot you t's. Sounds like you are covering your bases. Just continue to be smart.

Good luck !!!