Rate of return on investment for 2011

[Sir Loin]

Rate of return on investment for 2011

I would suspect by now most of you have closed out your books for 2011.
Anyone care to share their rate of return on their invest?

As 2011 was only my second year with my small baby calf operation my rate of return was only 8%.
Lower then I expected, but I am satisfied. 2010 was only 2%.
I am shooting for 15% for 2012.
How about you?
SL

 

[tom4018]

On our purchased calves we turned a 20% profit on them last year. Wish I would have done more and have held off buying any this year because of price.

 

[backhoeboogie]

It's all skewed for most everyone. Too much capital (cows) liquidated from drought. Steers dumped heifers dumped hay dumped too. It looks great on paper. It ain't real.

 

[shaz]

I haven't done taxes yet.
Are you basing your rate of return on your taxes? Same accounting method?

 

[jerry27150]

you guys are missing the point, farming is something you do for fun, not money

 

[Dixieangus]

On purchased stockers, 22%

 

[Sir Loin]

shaz et al

Re:

Are you basing your rate of return on your taxes? Same accounting method?

Absolutely not.
I am over 65 and not incorporated so I am not required to file income tax.
When I was under 65 and incorporated my wife did the accounting with an accountant.
But I used, as my father call it, "the poor mans accounting" a cigar box, which I now call pocket to pocket accounting. " My personal money in my right pants pocket and the business money in my left pocket.

When we were using both, the %s almost always came out within a half a % of each other and I thought that was close enough.
So all I am using now is the pocket to pocket method.
All this means is that if I buy a calf and there is no money in the business pocket (cigar box ) to buy it, I buy the calf out of the right pocket ( my personal money) and an IOU goes in the left pocket.

I record the IOU as a loan and the calf goes into the business inventory.
I just use Microsoft works spreadsheet that my wife put in the formulas in.
When she did the taxes she used Quickbook pro for the accountant, it was what he wanted her to use. I never understood QB, a MS works spreadsheet I can understand.
SL

 

[1wlimo]

OK SL so that is return on working cash?

What about the money in machines, land, cows etc?

 

[shaz]

Do you use capital appreciation of land in your ROI number?

 

[1982vett]

In farming and ranching you can't look at just one year.....

 

[tom4018]

In farming and ranching you can't look at just one year.....

Very true, we did better last year than others. Sometimes it is just the timing of when you sell your product.

 

[Sir Loin]

1wlimo

Re:

OK SL so that is return on working cash?

Not sure, it depends on how you define "working cash".

After deciding to come out of retirement, I decided to raise baby calves and selling them just after weaning, due to limed space (land and facilities ) in my head I knew I would have to invest $5,000 to get started, but I did not loan my new business the 5 grand up front. I loaned the 5 G as it was needed to save the business the cost of interest.

I could have just as easily loaned the 5 G to the business up front and had business pay interest on the loan, but then it would cost the business money and a repay schedule would have to be worked out.
If I did this the business would be borrowing and repaying the loan, with interest, for money it did not readily need.

In short: By business has a line of credit of 5 G with me, just as I personally have a line of credit with my bank. And I charge my business the same interest rate as my bank charges me. Prime plus 2 (for the year ) as of every Jan. 15 compounded monthly.

The business was started with no cash and only a $5 grand line of credit in the cigar box or left pocket, to be dispersed as needed. That is why it is sometimes referred to as "poor man's accounting".

This is exactly like a construction loan to build houses, except my business is building cattle.
SL

 

[SRBeef]

1wlimo

Re:

OK SL so that is return on working cash?

Not sure, it depends on how you define "working cash".

After deciding to come out of retirement, I decided to raise baby calves and selling them just after weaning, due to limed space (land and facilities ) in my head I knew I would have to invest $5,000 to get started, but I did not loan my new business the 5 grand up front. I loaned the 5 G as it was needed to save the business the cost of interest.

I could have just as easily loaned the 5 G to the business up front and had business pay interest on the loan, but then it would cost the business money and a repay schedule would have to be worked out.
If I did this the business would be borrowing and repaying the loan, with interest, for money it did not readily need.

In short: By business has a line of credit of 5 G with me, just as I personally have a line of credit with my bank. And I charge my business the same interest rate as my bank charges me. Prime plus 2 (for the year ) as of every Jan. 15 compounded monthly.

The business was started with no cash and only a $5 grand line of credit in the cigar box or left pocket, to be dispersed as needed. That is why it is sometimes referred to as "poor man's accounting".

This is exactly like a construction loan to build houses, except my business is building cattle.
SL

You can't really start a cattle operation with just $5000 in cash. There needs to be land, fences, water, handling facility, truck, trailer, maybe tractor, etc that need to be purchased and amortized or leased or rented to the business, etc.

I use 8% as a target true ROI (Return on Investment) if in fact you have the "investment" part properly calculated. If you can truly produce an 8% ROI when bank interest rates paid on savings and CD's is near 0% and inflation is somewhere under 4-5% you are doing well. jmho.

Jim

 

[Sir Loin]

1wlimo

Re:

What about the money in machines, land, cows etc?

OK, lets do land first. Here is my thought process as a business owner, when I came out of retirement.
First I need some money. We already covered that.
Now I need land.

As I personally already owned some land suitable for doing what I want to do, I rent that land to the business.
Which is exactly why I chose baby calves to weaning as my business.

The land is ½ Ac plus another free ¼ acre owned by a neighbor as it was fenced off ( adverse possession property ).
The property is fully fenced has water and I gave up my gardening building for shelter.

I rent the ¾ acres with improvements for taxes plus a few bucks for the improvements. Cost: $225 per year, paid yearly.

I rent my truck, and the use of my trailer, to the business for $250 per year. Unlimited use, fuel, tags, maintenance and insurance included.
I rent my tractor to the business for $10 per hour based on hours used, by the hour meter.
Cost last year: $180.

Miscellaneous rentals: i.e., tools, hay ring, milk bucks and bottles, nipples, feed bunker etc etc.
Cost last year: $100

Those are the fixed expenses for the year
Total: $505

Other expenses ( non fixed ):
Fuel, feed, fertilizer, medication, milk replacer, and hay etc are recorded separately, then totaled and recorded as a loan after 1 month if not repaid upon the next first sale.

This is how I give book keeping a KISS. ( Keep It Simple Stupid ) while at the same time running my business in an honest and professional manor so as not to put my personal assets and/or family in jeopardy.
SL

 

[terra8186]

I am over 65 and not incorporated so I am not required to file income tax.

What country do you live in. You are required to file taxes, if you are making money.

 

[Sir Loin]

SRBeef

Re:

You can't really start a cattle operation with just $5000 in cash.

Bull. I've done it with no cash several times, as I am doing it right now.
An unsecured line of credit is just one of many ways to get started in any business.
SL

terra8186

Re:

What country do you live in. You are required to file taxes, if you are making money.

Partly true. The key word " making money ". But how much money?
According to my accountant after my retirement our combined income is not high enough to cause us to file income tax.
So lets not ask any more question on that subject, if you get my drift.
SL

 

[alisonb]

So Sir Loin, seeings we must ignore the tax side of things we will not have a true rate of return.
Is there any specific reason why you chose your avatar?

 

[tom4018]

On our purchased calves we turned a 20% profit on them last year. Wish I would have done more and have held off buying any this year because of price.

Just looked back to 2005 on purchased calves, average of 12%.

 

[Sir Loin]

alisonb

Re:

So Sir Loin, seeings we must ignore the tax side of things we will not have a true rate of return.

It is a true rate of return for me.
Ever think about letting your dad be in your cattle business?
If I were not tax exempt, I would be incorporated for all those tax advantages.

Re:

Is there any specific reason why you chose your avatar?

LOL :lol:

Old Leo has been with me for over 20 years and he has served me well.
I bought him for $3.50 over the web, not knowing you could get them free, way back when home computers first hit the market.
And as with everything else I buy, I don't discard it unless it is worn-out. As you can see he is not.

Before Leo, my avatar was a pic of the 3 pawnbroker balls and I was know as Pawn.
Long story!

Here is a recent photo of Leo doing what he loves to do.
SL

 

[Sir Loin]

I think the only thing we haven't covered is labor.
I charge the business $10 per hr for my labor.
At present it runs an average of 1.5 hrs per day per month..
Cost: $450 per month
SL