planning – Growing Farm Profits | Improving Farm Business Performance™ https://www.growingfarmprofits.com Kim Gerencser - Improving Farm Business Performance in Saskatchewan and Western Canada. Wed, 21 Nov 2018 20:52:21 +0000 en-US hourly 1 https://wordpress.org/?v=4.4.30 Direction https://www.growingfarmprofits.com/direction/ https://www.growingfarmprofits.com/direction/#respond Tue, 21 Aug 2018 07:30:50 +0000 http://www.growingfarmprofits.com/?p=1506 Without direction, how do you know where you’re going? And we’ve acknowledged many times in this weekly commentary, if you don’t know where you’re going how would you know if you’ve gotten there?

Who sets the direction for your business? Without direction and a charted course, your business is akin to a rudderless boat, just floating along aimlessly. While “floating along aimlessly” sounds like a great vacation, it is most definitely not a strategy for your business.

Direction is set by the leadership team within the business. Big or small, any business without solid leadership, visionary decisive leadership, will find it very difficult to achieve its full potential.

This is why great leaders are well known, highly regarded, and abundantly compensated.

This reality crosses into all aspects of life, not just business. Sports, politics, religion, even in households, the same can be said. Every organization, even volunteer advocacy and/or charity groups have a designated leader…someone who sets the direction for the organization, or in the case where there is a board of directors (or something similar) the leader is accountable for the execution of the strategy and direction for the organization.

Nowhere is the accountability of the leader more public than in professional team sports. Anyone who is fan of any team sport can think of a time where their favorite team, or another team in the league, has went through the turmoil of having a talent laden roster of athletes that habitually fails to succeed. Often, all it takes is a change in leadership, the head coach or general manager for example, and the team begins to win. The leadership can also be identified in the locker room among the players; adding a player with tremendous leadership attributes can be as beneficial as cutting a player who brings a toxicity to the locker room. As fans, we all witness these personnel transactions and then complain or celebrate accordingly (depending on our own view of the matter) but it is a test of the team’s leadership to make the decisions to essentially “fire” a coach or player who may be popular from the outside looking in, but is a detriment from the inside looking out.

This example applies to your business as well. While it may be hard to justify letting go of a star member of your team, if that individual is not conducive to team harmony and progress it falls on the leader to make, or not make, the hard decision. Either way, the leader has provided a clear message to the entire team through their (in)action.

What is even harder is when the person that needs to be let go it the leader himself! Are you holding your team back from achieving their full potential? How would you even know if you are? Could you handle hearing that the problem is you, or would pride get in the way? It is a wise and humble leader who recognizes that the best move for the organization might be to fire herself.

Plan for Prosperity

Whether you believe that leaders are born or leaders are made, an organization without a leader is an organization without direction. Without direction, a business lacks purpose. Without purpose, a business lacks the ability to make progress. Without progress, a business becomes redundant. Look no further than Kodak or Blockbuster Video for real life examples.

As the leader of my own business, I hold the accountability for decisions (good or bad,) results (good or bad,) and overall direction & strategy. As the leader, it is up to me to adapt when things change because, as they say, “The only constant is business is ‘change’.”

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The Uncontrollables https://www.growingfarmprofits.com/the-uncontrollables/ https://www.growingfarmprofits.com/the-uncontrollables/#respond Tue, 03 Jul 2018 07:30:05 +0000 http://www.growingfarmprofits.com/?p=1459 There are many factors at play which affect your business each day. (Oh, look…I’m a poet and didn’t even know it.)

How is your business affected by:

  • NAFTA
  • Trade Wars
  • Real Wars
  • Geopolitical strife
  • Interest Rates
  • Income Tax
  • Sales Tax
  • Foreign Exchange
  • Oil Prices
  • Commodity Prices
  • Utility Prices
  • Inflation
  • Deflation
  • Theft and Vandalism
  • Weather and Natural Disasters
  • The 4 D’s (Death, Divorce, Disagreement, Disability)
  • Physical, Emotional, Spiritual, and Mental Health

You have full control over none of these. At best, you might have partial influence over two or three on that list. Yet you, your business, and ultimately your family will all feel an effect that falls somewhere between minimal and profound.

The way to minimize the negative effect of any of The Uncontrollables is to prepare. You wouldn’t head out on a road trip with an empty fuel tank and no spare tire, would you?

A strong balance sheet (meaning low Debt to Equity along with surplus Working Capital) will mitigate the negative effects of The Uncontrollables. Conducting sensitivity analyses on the likes of tariffs, interest rate changes, tax changes, and foreign exchange will provide your business with the critical knowledge needed to make informed decisions in the face of The Uncontrollables.

Plan for Prosperity

We can scream and holler, protest, or pout all we like in the face of The Uncontrollables; it will change nothing.

God grant me the serenity to accept the things I cannot change, the courage to change the things I can, and the wisdom to know the difference.

-Reinhold Niebuhr

Having the wisdom to know the difference between between what you can control and what you can’t is merely the fist step; acknowledgement of what you cannot control on its own will not mitigate the effect of The Uncontrollables. Action will trump intention every time.

Take action to protect your business, your family, your legacy. You need not be a rudderless vessel helplessly surviving on the mercy of the sea. There is no need to be stranded on the side of the road with no fuel, no spare tire, and no phone.

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Bubbles https://www.growingfarmprofits.com/bubbles/ https://www.growingfarmprofits.com/bubbles/#respond Tue, 26 Jun 2018 07:30:31 +0000 http://www.growingfarmprofits.com/?p=1451 One of my investment advisers forwarded an article to me recently that contained an especially compelling paragraph. The entire article is US focused, penned by a US writer and published in a US publication (reprinted in Canada in the Financial Post.) Still, the applications of these two sentences are broad and deep:

“…it (recent economic growth) is driven by another round of financial engineering that converts equity into debt. It sacrifices future growth for present consumption.”

– Steven Pearlstein, June 15, 2018

The comparison was being made to the US housing crash that kicked off the global financial crisis in 2008. We all know what happened there; no need to rehash it here.

Yet here we are, barely 10 years later, standing at what some people feel is the precipice of another recession.

“Those who cannot remember the past are condemned to repeat it.”

– George Santayana (Ref.)

The statement from Pearlstein referenced above does have application locally: the recent rapid appreciation of farmland has provided a financial backstop to farm businesses that would have otherwise found themselves painted into a very tight corner. The present consumption, elevated operation costs and living costs driven by high priced equipment and higher living standards, is what, in this space, is leading to the sacrifice of future growth. Here is what I mean…

Les Henry recently penned an article titled Saskatchewan Farm Income and Land Prices which was published in Grainews. He compares farm income and land prices having converted both to 2018 dollars to quantify his position. An example Henry uses in the article describes how a friend of his purchased a brand new loaded Lincoln in the mid-1070’s and how the equivalent number of bushels of wheat, the staple crop in those days, was approximately 1,500 bushels needed to purchase that car. My dad used to make the same argument using the example of the only new tractor he ever bought: a 1974 CASE 970 that arrived in the yard with the plastic still on the seat. The qualifying statement was that it only required 2,870 bushels of wheat in 1974 to buy it; about 7 bushels per acre on his small farm. What does 7 bushels of wheat get you today on your farm?

Les Henry believes that current land prices are unsustainable. If he is correct, then we are almost certain to experience a bubble, even if it is a small one simply because of the amount of “equity” being used to backstop present consumption. Equity is in quotes because it was not earned equity from retaining profits in a business, but rather windfall equity from land value appreciation (similar to what set off the US housing crisis.) The rise in land values created the equity that, in many cases, has been turned into debt. Should land values pull back, lenders will be quickly re-evaluating their security and making some difficult phone calls where warranted.

If there is a bubble happening here, all that “equity” that was converted to debt has certainly helped create it.

Plan for Prosperity

We have dedicated a lot of space to discussions on growth here recently. It saddens me to think that future growth may have been sacrificed for current consumption. However, unless the wolves are near the door there is still opportunity to right the ship. Profit opportunities can be found, but it will take work, intention, and likely having to answer some uncomfortable questions.

The last five weeks we have discussed business cycles, elasticity of demand, the power of a network, intentionality in your business, and your vision in your business. It is no surprise that each of these topics, if parlayed into tangible action within your business, translate into a stronger entity that would likely provide a view from high on “success mountain” looking from a safe vantage point well above the “precipice of economic recession.”

If you want some ideas on how to climb higher up onto Success Mountain, please call or email.

 

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Elasticity https://www.growingfarmprofits.com/elasticity/ https://www.growingfarmprofits.com/elasticity/#respond Tue, 12 Jun 2018 07:30:38 +0000 http://www.growingfarmprofits.com/?p=1437 Elasticity is an economic term that assesses the change in demand of a good or service relative to changes in other factors, such as price, consumer income, or supply. Goods and services are said to be elastic when they are more sensitive to changes in other factors. Examples of elastic products and/or services would be new home construction, extended vacations abroad, and (sadly) savings accounts. Inelastic goods and services have very little change in demand when other factors, such as price, are changing. Examples are gasoline, utilities (natural gas, electricity, water) or an ambulance ride (no one dials 911 for an ambulance, but then shops around for the best price…)

When considering what your business provides, whether it be products or services (or both), what types of elasticity affect the demand for your offerings?

The most common type of elasticity is price. How does a change in the price of your product or service affect demand?
Another type is supply. How does a change in supply affect demand for your product or service?
Another type is customer income. How does change to your customers’ income affect demand for your product or service?

One factor that contributes to elasticity of your product or service is the availability of a substitute product or service. Who are your competitors? What makes you different from them? Are they local? Do they operate online? Etc.

A business that had exclusive distribution rights on a high quality brand name product felt that its business was immune from price elasticity. While not over-charging, they did become complacent in their marketplace because they believed that their competition provided inferior products. When competition arrived in their marketplace which their customers felt was better value (price vs quality), the business suffered.  At this point, they were forced to react to their market’s pressures. Reactive is never as good in business as proactive.
(How many specific examples can you think of that are aptly described by this generic story?)

If you have experience recent changes in the demand for your product or service, one of the many factors to consider is elasticity (customer service and product/service quality are the foremost factors to understand in this realm.) However, this will be very difficult to quantify without sufficient business record keeping and information.

Plan for Prosperity

There are many factors that affect your marketplace and your position in it. This becomes even more complicated in the current age of technology. How are you planning to stay relevant? Or better yet, how are you planning to innovate, to lead the market and not just keep up with it?

Understanding the elasticity of your product or service is an important piece of knowledge that accentuates your ability to position your business in your marketplace. It will give you more power to prepare for how those multiple factors (such as price, supply, and customer income) will affect your business.

Elasticity is not a perfect function, nor is it the only measurement you should employ. There are anomalies: I think it is sad, and a little dangerous, that new electronic devices (like smart phones) and consumer debt appear to be inelastic, yet should be highly elastic.

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Sub-Topics of Growth (Part 3) https://www.growingfarmprofits.com/sub-topics-of-growth-part-3/ https://www.growingfarmprofits.com/sub-topics-of-growth-part-3/#respond Tue, 15 May 2018 07:30:55 +0000 http://www.growingfarmprofits.com/?p=1411 In this final installment of our discussion on the multifaceted growth opportunities that exist in your business, we will touch on Information Management and Management Capacity. One more time, here is another look at the graphic that has laid out the basis of our conversation.

Facets of Growth 1 Information Management

This refers to the information that you need to run your business day to day, month to month, year to year, production cycle to production cycle, project start to project end, etc. Whatever the scope and duration required for your specific business is subjective and will be determined by you and the needs of your business. Have you given much thought to the type of information you need, what form you need it in, and how often you need it? Far too many businesses have not given this question sufficient thought.

How does a business make important decisions without sufficient information? Has your lender ever granted you new or additional credit without sufficient information? Of course they haven’t! Doing so increases risk, and banks are exceptional at managing risk.

Depending on your business and the industry in which you operate, the information you deem most critical will be different from others. For example, a business in the service industry may need to track client contacts per employee per day whereas a business in the construction industry may want to track re-work (work that needs to be redone because it wasn’t right the first time.) Critical information that is industry agnostic would include current and accurate information on liquidity, productivity, and profitability.

What systems do you currently use to compile your business information? Remember, systems do what they were designed to do, so if your system is not providing you with the results you want then there is a flaw in your system! Taking a look at the graphic below, your management information system(s) should collect raw data from business operations (whatever business, whatever Information Managementindustry) and produce the data into a useful form, typically a report of your preference, so that management can analyze the results of what has happened in your business over the last period of time (week, month, quarter, etc.) Business decisions get made which affect operations, and those decisions get made anyway, even if out of necessity. So why not make informed decisions that are impactful, progressive, and positive?

If working capital is tight, would it be helpful to learn that your customers take 3 weeks longer to pay that you thought? If profitability is not meeting expectations, would it help to know that profit margins have been shrinking? If productivity is under budget, would it help to know that employee sick days have been on the rise? What you think are problems in your business (tight working capital, shrinking profit margins, decreased productivity) are actually symptoms of the real problem (which in this case could be lengthy accounts receivable, poor inventory control, or lack of staff morale…)

If you are going to step up from trying to treat the symptom by first learning what actually is the problem, then you need good management information.

Management Capacity

Coming from the farm and having spent most of my professional career working in agriculture, I often get asked a specific question by people who grew up on farms in the ’50s or ’60s but have left the farm as young adults and never got involved in farming. They ask, “These farms are getting bigger and bigger; how big is too big?” My response is, “I can tell you exactly when. It’s when the farm has expanded beyond the owner’s/manager’s ability to manage it! For some, that is 40,000 acres; for others, it’s 400 acres.”
**NB: Not looking at corporate city limits but actual development, 40,000 acres is slightly less than the size of Regina, Saskatchewan. In contrast, 400 acres is approximately the area used by the Tor Hill Golf Course.

Management Capacity Business owners/managers (these roles are not synonymous, by the way) must be proficient in many different aspects of their business. One might say that business owners “need to wear many hats.” Being an expert in the work your business does is important, but if that is where your capacity ends, then you surely have “fallen prey to The Fatal Assumption” that Michael Gerber wrote about in The E-Myth Revisited. Just to name a few, strategist, controller, marketer, recruiter, trainer, collector, innovator, and leader are but a smattering of the hats a business owner must wear at some point or another. If your capacity while wearing any of those hats is less than “expert”, then you might be inhibiting growth!

“Do what you do best, and get help for the rest™” is a cornerstone of my advisory work with clients, and as such, I’ve trademarked it. If we spent our entire lives trying to improve on our weaknesses, we would reach the end of our lives with a bunch of strong weaknesses. However, if we spend our lives utilizing our strengths and utilizing the strengths of others in areas we are weak, then we create a synergy that provides incredible leverage not only for our business, but for ourselves and the people we have hired!

Take a moment this week to perform a self-audit on where your capacity is reaching its limit. Growth is about breaking through limitations, and this becomes an exceptional opportunity for growth, both in your person and in your business.

Plan for Prosperity

Growth is about more than just size and scale, but it is about expanding. Growth is expanding our view, our skills, and our attitudes. Growth is about expanding our network, our credibility, and our place in the market.  We’ve just completed a three-part journey that coursed through the many facets of growth. In summary:

  • Your customers give your business a reason for being. How do you find them and keep them?
  • Your product or service can be your boom or bust. Are you innovating how your deliver your product/service? Where is your link in the value chain?
  • Pursuing growth from a position of financial weakness is a recipe for disaster. Are your finances putting in the position for growth, or are they hindering growth opportunities?
  • How are you investing in your people? Are they being trained? Are they provided with increasing responsibility? What type of culture does your business have?
  • Accuracy of your management information is critical. Is your information system up to par? Are you making critical decisions with outdated or inaccurate information?
  • If you are the heart and soul of your business, is your capacity in any of the critical management functions you perform a limiting factor in your business’ growth?

You business is like a tree: if it is not growing, it is dying. But unlike a tree, your business has many ways it can grow. Always grow, and grow all ways.

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Sub-Topics of Growth (Part 1) https://www.growingfarmprofits.com/sub-topics-of-growth-part-1/ https://www.growingfarmprofits.com/sub-topics-of-growth-part-1/#respond Tue, 01 May 2018 07:30:51 +0000 http://www.growingfarmprofits.com/?p=1395 Last week, we opened up the discussion on the many facets of growth, and then touched on the many sub-topcis of those different facets. This week, we’ll being digging deeper. Here is a graphical reminder of what we started.

Facets of Growth 1

Customers

A foundational rule of the investment advisor world is KYC: Know Your Customer. When I was a part of that world, it was paramount that Know Your Customer protocols were religiously adhered to. The main tenet of this requirement was that an advisor could not offer proper investment advice without first knowing some very important information about their client: age, retirement goals, income, risk profile, and net worth are but a few of the critical details that must be signed off. No exceptions. By offering advice and/or selling investments to a client without proper KYC, the advisor is risking his or her career. Yes, it is potentially that severe.

Who are your customers? What do you know about them? Do you know enough about them to be able to anticipate their needs? Is their business growing? What are their challenges?

Who are your potential customers? What do you have to do to find them, attract them, keep them? This is a lot like dating; pursuing a courtship you might say…

The list of anecdotal evidence as to the importance of customers is long, as is the list of reasons why keeping your existing customers is easier and less costly than constantly finding new ones.

How do you market to your existing clients? Your future clients? Anecdotal, but it is amazing how often you can hear it said from an existing customer, “Oh, I didn’t know you had that!” Do your clients know about all the products and services you offer?Customers matrix

People appreciate being appreciated. Often as simple as a Thank You note, appreciation cannot be undervalued in your eyes. Convert your clients to “raving fans” and they will do your marketing for you by telling others about how good you are. Give them a hat or jacket, and they become a mobile display of your branding.

Service sells. It sells more products. It sells more service. It sells an incredible number of books. Often times it can even sell a crappy product…several times over! Most importantly, service creates loyalty. What are your service standards? Do you have an established procedure for how you provide service?

There are many ways to segment customers, but for this conversation the important distinction we will draw on is whether your customers are relationship customers or transactional customers. One isn’t better than the other. Wal-Mart has built a global empire on doing business with transactional customers. Other retailers try to create relationships with their transactional customers by implementing loyalty programs (Ref. Canadian Tire money, PC Optimum Points, etc.) Again, it is not that one is better than the other; what is important is that you know which space you play in. If you are a relationship business but treat your customers as transactional, you are probably losing customers and wondering why. If you are in a transactional business but you treat your customers as relationships, you’ve probably got incredibly happy and loyal customers which might confuse why your net profit margins are so poor.

To toss out one more anecdote, “Customers are your reason for being in business.”

Product or Service

Whether your business deals with products, services, or both, it is best to know what you do best, which of your offerings is most profitable, which is least profitable, and where to dedicate your time. This can only be done with accurate data on business performance (we will discuss more about Information Management in Part 2.)

Where does your product or service fit on the value chain? Do you manufacture from raw materials? Do you retail to the final user? Do you provide logistical solutions? Are you providing ancillary services somewhere along the value chain? Every step in the process is important, some more than others. If the link you occupy can be internalized (consider Wal-Mart (again) which owns its own trucking fleet) or eliminated altogether, taking some time to examine your business’ future would be advisable.

How do you market your product or service? Is your marketing reaching the right audience? How do you know? As mentioned above, if any of your current or future customers says, “I didn’t know you had/did that!” then marketing offers tremendous growth opportunity!

I cannot recall where I heard it, so if any readers of this post know who said it first, please let me know so I can provide attribution:

“Innovate or die.”

-please help me fill in this blank

Any product or service that is not under consistent evaluation for opportunities to innovate will find itself on the trash heap of great ideas/products that failed to keep up! Apple was making a runProduct_Service matrix at being the largest company (by market capitalization) in the United States, if not the world, from consistently introducing a new product that was nothing more than innovation to an existing product (which an innovation of a previous products….and on and on…) In this day and age where the consumer has an insatiable appetite for the new & improved, latest & greatest, “give it to me right now”…well, innovate or die takes on a very important meaning.

What is the return you are achieving on the investment you have made in your product or service? Keep in mind, your investment is more than monetary; it also includes time. The time you spend on low profit products or services will leave you less time to invest in the higher profit products and services that you offer. Remember, this time investment must also include family time lost (or otherwise allocated.) Obviously, businesses cannot just ignore anything that does not provide the highest profit, but knowing where your best returns are stemming from will allow you to maximize your return on investment.

Plan for Prosperity

Last week we offered six facets to growth; this week we delved into two of them and provided nine sub-topics, each of them a growth opportunity. By looking into any of these subtopics and leveraging the growth opportunities you have available, can you improve your entire business by 1% this month? If you can do that this month, can you do it every month. An improvement in your whole business of 1% per month means that your business will have grown by 12.68% more than if you had done nothing. That’s 12.68% better than you would have done, 12.68% better than last year, 12.68% straight to your bottom line.

Who’s ready to get growing?

 

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Interruption https://www.growingfarmprofits.com/interruption/ https://www.growingfarmprofits.com/interruption/#comments Tue, 17 Apr 2018 15:51:06 +0000 http://www.growingfarmprofits.com/?p=1380 This shouldn’t be here.

It shouldn’t have gotten done.

But the thought of missing a Tuesday for the first time in 172 consecutive Tuesdays has me doing something I probably shouldn’t be doing. I should still be in bed. I’m very weak.

Actually, I should be in Boston to attend a conference I’ve been looking forward to for a year. But, illness can have a way a derailing all of our best laid plans.

Over the last week-and-a-half, both of my children have been affected by a different iteration of  the virus that is currently going around. My oldest took the least of it; my youngest was nearly hospitalized. I managed to dodge it, until I didn’t. It caught up to me on Sunday, the day that was all planned out: tidy up work before my trip and, of course, pack for the 5 day venture. As my condition worsened, I made the call at 5pm to cancel my travel plans. By 8pm, I was headed for emergency.

This has been the first time I haven’t gotten out of bed in 2 whole days since, well, that story is a little personal.

I have heard a disappointing number of business owners over the years express how they need to hold on to the reigns and keep control; their justification is that they need to be needed. They feel that their purpose is to control the business. How unfortunate.

What happens to the business of an owner with that mindset who suddenly took ill? Does the business stop? What should be told to customers, employees, suppliers?

If you are a business owner, ask yourself the following to gain some insight into your business continuity plan:

  1. Can your business run without you there every day?
  2. Is there someone, or several others, who know what you know so that your business can operate uninterrupted in your absence?
  3. Do you have health insurances (disability, long term care, critical illness) to cover your personal financial obligations during an illness so that you won’t be draining cash from your business during that time?
  4. Do your loved ones and/or your key people know who to contact and what to do in case of your severe illness or sudden passing?

As a solo-preneur, I am my business. If I’m not working it, my business stops. So for the last few days, things have stopped. Can your business afford to stop?

Plan for Prosperity

There are few guarantees in life, and yet it happens too often that we don’t plan for that which is guaranteed. Maybe us weak humans have difficulty facing our own mortality? Maybe it’s something more narcissistic? No matter what it is, we’re all going to get sick now and again (whether it’s a minor illness from which we recover or something more serious) and we are all going to die…someday. If we aren’t prepared for the inevitable, the people left behind are the ones who will be hurt the most.

Take some of that (perceived) unpleasantness onto yourself and do this hard work so that you can save your loved ones, your employees, and your legacy the pain of trying to keep things afloat while you’re out of the picture.

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When Tragedy Strikes https://www.growingfarmprofits.com/when-tragedy-strikes/ https://www.growingfarmprofits.com/when-tragedy-strikes/#respond Tue, 10 Apr 2018 07:30:27 +0000 http://www.growingfarmprofits.com/?p=1375 It hits hard. Like a body blow from Mike Tyson. You didn’t know you could feel that much pain. Suddenly, everything else seem to not matter except for what you’re feeling in that moment.

When word began to spread during the evening of April 6, the feeling of shock touched everyone. A Junior “A” hockey team in their charter bus on the way to play Game 5 of the league semi-final series collides with a loaded semi tractor-trailer.

Shock instantly turned to devastation. Twenty-nine on the bus. Fifteen would perish. Ten of those lost were players on the team, aged 16 to 21.

It took me until the next morning to be able to gather any sort of rational thought. The realization that so many families would be more profoundly affected than most any of us can imagine can take some time to sink in.

Then the world took notice. To make an already told story short, in less than 60 hours people from around the world have donated, at the time of this writing, nearly $6million to help support the families of the victims of this horrible tragedy. https://www.gofundme.com/funds-for-humboldt-broncos

I lost one of my oldest friends in our senior year of high school. She was a passenger in a car, unassuming on a Friday afternoon, her dad’s birthday of all days, when a tragic collision took her…three weeks before her 18th birthday, six weeks before her high school graduation. It will be 25 years next month since she’s been gone.

Life is fragile, it can change in a blink, and must not be taken for granted. Facing our own mortality is not easy; it is something that young men playing junior hockey, nor my old friend, had not likely given much thought.

None of us is immune to the tragedy that the world can bring our way. If tragedy strikes your business, how will it carry on? Are all your affairs in order? What if you or a key person in your business didn’t come home tonight?

Plan for Prosperity

Proper business planning has us strategizing on how to handle the “what if”. This type of preparation also applies to our person. Get your will, powers of attorney, and organ donor card in place; share your wishes with your loved ones; don’t take the inevitable for granted.

And hug those you love…often. Life is never fair, and is always short.

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Prerequisites for Growth https://www.growingfarmprofits.com/prerequisites-for-growth/ https://www.growingfarmprofits.com/prerequisites-for-growth/#respond Tue, 03 Apr 2018 07:30:12 +0000 http://www.growingfarmprofits.com/?p=1365 Last week we began a discussion on Avenues to Growth, and in introducing the concept we described how employing tactics to achieve that growth is meaningless without first defining your business goals, “your WHY”. The reason: how do you quantify actions without a desired outcome with which to measure those actions against?

Just get in your truck and drive. Go. Which way do you turn out of your driveway, or at the corner? Where are you going? After driving for an hour, aimlessly, where will you be?

It may be anecdotal, but there is truth in saying “If you don’t know where you’re going, how will you know when you get there?” Every time you get into your vehicle to drive, you have a goal of getting somewhere. It may be to the rink, the bank, or the store, but the point is you have a goal of where you want to go. And somehow, quite amazingly sometimes, you reach your declared destination.

Your business is no different.

Pursuing growth in business without defining what it is you’re trying to achieve is as fruitful as getting into your truck and driving aimlessly for an hour. You will have used up valuable resources (time, capital, fuel/energy, etc.)  and found yourself somewhere you didn’t expect to be. Then you have the challenge of figuring out what to do when you’re there. Turning the truck around and heading home is much easier than doing the same in business. Metaphor ended.

Step 1. Define your business goals for growth.

 


 

To achieve your growth goals, you will need sufficient resources. This opens up a plethora of subtopics that is suited to a separate discussion. For today, we will look at only one: financial.

Part of the activity in defining growth goals is to include discussion on the business’ financial resources. Does your business have, or can it acquire, the resources required to successfully implement the tactics that will achieve your goals?

Ask any banker, any financial analyst, and you’ll probably get a response akin to the importance of cash to your business. Cash is critical, often suggested that “cash is king.”

“Cash is not King…it’s the Ace!”

-Phil Symchych

To suggest cash is king would indicate that something else is the ace, meaning something else is more important than cash, and I’m here to tell you that cash is the lifeblood of your business and draining the cash from your business is similar to draining the blood for your body.

It’s true, cash is not king…it’s the ace.

“Growth, however, is king!”

-Kim Gerencser

By letting growth be the ace and cash be king, you’re placing growth ahead of cash; this is incredibly dangerous. Many aggressive businesses have grown themselves to the brink of bankruptcy by making this mistake. I recall dealing with some young farmers who pursued growth so rapidly that their working capital couldn’t keep up. They began borrowing more and more operating credit to keep the business afloat and found themselves using their operating line of credit to make their term loan payments (HINT: bankers get real squirrelly real fast when this happens.) This business didn’t have sufficient cash when pursuing their growth actions. They had no defined goals, only (what now appears to be) reckless abandon. They might have one year left, and if that year isn’t stellar they could be forced into liquidation.

Step 2. Compile (or acquire) sufficient resources for growth.

 


 

Because of my work in agriculture, I often get asked by non-farming people “How big is too big” when it comes to the size and scale of modern farm operations. My reply: I can tell you exactly when a farm is too big (as the audience waits with baited breath)…it’s the moment that the farm has outgrown the management ability of the manager! For some it’s 40,000 acres, for others it’s 400 acres. It all comes down to management capacity and ability.

Too often, businesses feel they must expand to remain relevant. As such, they pursue growth before they are ready. This can lead to management burnout, employee dissatisfaction, and lost customers. Consider a elementary school aged child; if that child has not successfully exhibited sufficient competence in math, reading, and writing, the child should not (by rights) be advanced to the next grade. Doing so will cause the child to be unnecessarily stressed in the next grade from having to learn new concepts before the base knowledge has been established. Such a situation can lead to all kinds of issues better left to the educational professionals. There is great similarity in the abilities of the manager in your business to the example of the school age child. Asking management to manage a business that has grown beyond their ability is a recipe for failure.

Step 3. Perform an audit of management’s ability & capacity for growth.

 


 

Plan for Prosperity

Aspirations for growth are born out of the desire for prosperity. Both must be planned. Accidental prosperity from fortuitous growth is not sustainable.

Growth is exciting, invigorating, maybe even intoxicating…especially when growth happens systemically, systematically, and successfully.

Conduct the 3 Step Growth Audit laid out above to evaluate your likelihood of successful growth. If you need some guidance, give me a call or email.

 

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Benchmark Against the Best https://www.growingfarmprofits.com/benchmark-against-the-best/ https://www.growingfarmprofits.com/benchmark-against-the-best/#respond Tue, 06 Mar 2018 07:30:39 +0000 http://www.growingfarmprofits.com/?p=1342 Who do you look up to? It doesn’t have to be another business like yours, it can be anyone or any business. Why do you look up to that person or entity? What have they done that you want to emulate?

“If you benchmark yourself against the average you’ll be out of business in 5 years.”

Dr. David Kohl

What Dr. Kohl is referring to is that “average” is not success. As one client said this past week, “Average is the best of the worst, or the worst of the best; either way it’s not where we want to be.”

Personally, I’ve never been a fan of using averages when analyzing business performance. The sample pool will skew the calculation up or down; extenuating circumstances create anomalies in year-over-year business results; the list could go on. In my opinion, average is a useful tool to make yourself feel better about where you’re at. I prefer to make clients uncomfortable about where they’re at so that they are motivated to “Be Better™”.

Here’s someone we all know about who is never not trying to be better: Warren Buffett. Now don’t get me wrong, I’m not suggesting the Oracle of Omaha is without flaw or that he is somehow worthy of unwavering praise, but it cannot be denied that his approach to building wealth has enjoyed success beyond most of our wildest dreams. Recent articles in the Financial Post indicate that Berkshire Hathaway is currently sitting on about $116 Billion in cash and other short term investments. This cash is sitting idle for the purposes of making acquisitions, but Buffett has admitted that he’s struggled to find acquisitions at sensible prices. Also, the article states that Buffett is unwilling to load up on debt to finance deals at current prices.

“We will stick with our simple guideline: The less the prudence with which others conduct their affairs, the greater the prudence with which we must conduct our own,”

Warren Buffett.

It has been written in this series of commentaries that during the elongated commodity super-cycle which ran from about 2007 to 2015 we could find many “average” businesses who appeared to be “excellent”. The appearance of excellence was fed by strong yields and high commodity prices. To translate: everybody was making money, even the worst managers and the high cost operators. To paraphrase Dr. Kohl: when the bottom 20% of producers become profitable, we’re in trouble! It didn’t take much prudence to be profitable during the boom; how did you compare during the boom? How do you compare now?

So when considering who you want to mirror, is it one who has been racking up debt balls-out on the expansion train or one who has been quietly amassing a war-chest of financial strength that can be deployed when the right opportunity presents? Is it one who operates with reckless abandon, or strategic execution? Is it someone who is average, or is it the cream of the crop?

Plan for Prosperity

Benchmarking data is hard to come by; not everyone is willing to share the details of their successes or failures. So to start, benchmark against yourself. How did your most recent year stack up against your best year ever? How do your 2018 expense projections compare to your 2003 expenses? What has been the 10 year trend of your working capital, EBITDA, net profit, total debt, and total equity? Is it something you’d be proud to share? Let me know; I’d love to hear from you on what you learned from this exercise.

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