Equine Business - May 2009
In a declining equine market with increasing cost we can all use all the help we can get to survive this BIG bump in the road. Many of us in the market have to create our own economic stimulus by being smarter; more organized and more efficient by using tools that will help us gain and sustain a competitive edge. You can make money in the equine market and still love your horses. In fact, the current economic environment provides an excellent opportunity to get your business right sided and emerge a much better business with the potential to gain market share going forward. Even if you don't operate as a business the same principals apply. Using your money wisely may provide the opportunity to attend another horse show or event, or do something special with your horse. Think - plan - organize - execute - make/save money.
I am sure many of you have heard the expression; money is made by either earning it or saving it. I would add that if you can't measure it, you can't manage it. I call this management before the numbers. There are many good accounting packages on the market, but the problem with an accounting only package is; 'accounting is history and not management'. This is the same problem with the so called horse management programs that only record information and then, you have to spend your valuable time entering the information. History in a business is important, but you really want tools that will help you create history. The ideal environment is to have a management tool that integrates the management and accounting functions while providing real time information so nothing falls through the cracks.
When setting up a management system an important initial step is to match your Chart of Accounts with the items you want to measure so they you can be managed. The items you select should help you optimize your work flow, have a positive influence on your profitability and last but not least, conserve cash. Cash in an equine business is KING. The quality time you spend setting up your Chart of Accounts will pay dividends as you move forward in your equine business.
When setting up your Chart of Accounts don't just limit your thinking to expenses. One of the most important management areas in a business is Asset Management. Asset Accounts fall into two primary categories; Current Assets and Fixed Assets. Current Assets are things like petty cash, your checking account, accounts receivable (money owed to you) and inventory (supplies on hand to run your business, horses for sale, etc.). Accounts receivable and inventory can be big cash consumers. If you aren't collecting from people who owe you money, than they are consuming your cash. If you aren't paying attention (managing) to your inventory and you have too many supplies, you are consuming cash on things you didn't need. Too much inventory also creates a financial risk if supplies are in inventory too long and they spoil or get lost. Fixed Assets are generally BIG capital expense items and therefore, consume a lot of cash. Things that fall into the fixed asset category are horses used in production (breeding and lessons), vehicles, equipment (tractors, ATV's), Buildings, etc. You need to make sure all your fixed assets are producing and producing at a level where they are providing you with a Return on Investment (ROI). Before a fixed asset is purchased you should determine the ROI that is acceptable to you. If the asset is not meeting your expectations, then you need to solve the problem or sell it. You will not be able to make that determination without setting up your system to measure the assets productivity.
Next month we will continue setting up a Chart of Accounts that is both measureable and manageable. Then we will use the accounts to make meaningful financial performance measurements and discuss what they tell us and how they can help us.
'If you can't measure it, you can't manage it.'
Bob Valentine, Ph.D.