Open Fences Winter 2016 / Spring 2017

YOU BOUGHT THE RANCH OR FARM, NOW WHAT?
by Hall and Hall
The farm and ranch management business has evolved dramatically since the days when managers focused strictly on either foreclosed properties
owned by institutions or small farms in the Midwest that were rarely visited by their owners. These days – with the exception of the traditional Midwest — farm and ranch
owners derive a good portion of their “return on investment” from the pleasure they derive - both from visiting their property and from their personal involvement in the
management of it. The manager’s role in providing “resource management” services can range from simply overseeing an active operation by establishing budgets, paying
bills and sending periodic reports to full-scale day-to-day management. In the Rocky Mountain West, Southwest, Southeast and Texas, more involved owners tend to have
a very different set of priorities than investors who are simply trying to maximize income.
THE OVERSIGHT ROLE
This evolution to a complex and diverse set of priorities – often
at odds with each other — and the more active role of the owner
has led to the redefinition of the management company’s role. It
was simple when one had a hands-off owner who was interested
in an income stream. That is not the case anymore. This has led
to defining the role of the management company as providing
“oversight” or acting as an “overseer.” This role necessarily begins
with the identification of all the owner’s goals. This can be a complex
process with the property manager often driving the discussion and
forcing everything out on the table, so to speak. This leads to the
development of a management plan for the property that recognizes
these goals. This in turn results in the development of a budget for
the implementation of the plan.
The manager’s role in all of this can be very complex, but his or
her most important task is to ask the hard questions. There are
essentially three areas that need to be addressed:
• Day-to-day operation of whatever crop or livestock enterprises
that can provide cash flow such as a cow/calf operation, farming,
timber production, hunting or fishing
• Activities that are designed to enhance the value of the real
estate such as increasing crop production or livestock carrying
capacity or the enhancement of habitat for wildlife or fisheries
• Identifying the owner’s use of the property and priorities in
terms of dealing with family and guests, and maintaining the
infrastructure and improvements that are specifically for the
owner’s use and enjoyment
These all call for hard questions to be asked and priorities to be
established. When all this has been taken care of, the oversight role
begins and it can be extremely delicate. A good management firm is
able to strike that critical balance between too much management
and too little. Often a small tweak here and there is all it takes to
keep everyone on a positive track.
ADVANTAGES OF THE OVERSIGHT ROLE
It is a fair question to ask “why should one invest in oversight?”
Perhaps that question is best answered by outlining the advantages
of this relationship.
Potential conflict between owner and manager – Essentially what
is good for the on-site manager — such as a full complement of
equipment and labor — can be a budget buster for the owner.
On the flip side, there are owners who are willing to spend more
for equipment and labor than managers expect. Owners are
often not aware of what a manager has to go through on a daily
basis to deliver a quality experience for the owner. Balancing the
requirements of the livestock, farming, wildlife/fisheries operations
with asset management concerns, enhancement of the property’s
resources, dealing with the owners and their family and guests,
and ensuring their personal enjoyment of the ranch all factor in at
differing levels. Cash flow and profitability often become secondary
priorities. The ranch manager’s role becomes very complicated. A
third-party overseer can help the owner understand how difficult
this can be. He or she can bridge the gap between the owner and
the manager and help them discover the best mix. The oversight
role makes it possible to identify and remedy problems before they
become insoluble and lead to hard feelings.
Flexibility – As noted earlier, the oversight role can range from
simply establishing budgets and paying bills with periodic reports
to full-scale day-to-day management and everything in between.
Depending on how things are working, the overseer’s involvement
may be scaled back as the on-site manager becomes more
comfortable with the owner’s expectations.
Cost savings – The Oversight Manager can help out in many ways
in this area:
The oversight role can be tailored to allow an involved owner to hire
a less expensive onsite manager who might have “gaps” in his or
her resume that can be filled by the overseer. Typical gaps might
be things like financial management, wildlife/fisheries and habitat
knowledge, or communication skills.
In the area of marketing crops, livestock, and wildlife or working
with outfitters and buying equipment, a management company is
generally active in these marketplaces for other clients and can save
a manager time and money by providing input in these areas.
If high-quality contractors are needed to perform work on the
ranch, a management company will typically have relationships
with proven operators who will have an incentive to provide highlevel
services because they know they will have future opportunities
if they provide good service at a competitive price.
In summary there are three underlying themes that must be
addressed by the modern-day oversight manager:
The first one is helping owners identify their goals and objectives
for the ranch or farm. Whether the goal is agriculture, recreation,
return on investment or some combination, the manager must help
identify those goals and get all parties pointed in the same direction.
The second theme is a matter of pure economics. The most
expensive issue in ranch ownership is management turnover. It is
both stressful and time consuming to have to deal with replacing
a management team. The oversight role is specifically designed
to avoid this through subtle communication and identifying
everyone’s expectations up front.
The third underlying theme is that, for many involved owners, a
10 | OPEN FENCES WINTER 2016 / 2017
Volume 7 ✫ Number 4