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Perspective

Perspective

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What do you want to accomplish between now and Oct 1, 2018?

If I had asked many of you that question one year ago, you might have provided a response that would make you cringe using the lens of today. Last year, may farms were suffering from excess moisture, and long drawn out harvest. On this date one year ago, there were millions of acres yet to be harvested in western Canada. If one year ago you were hoping for a hot dry 2017, well…you got it.

How has your perspective changed over the course of a year? What is affecting the change in your perspective? If you’re more concerned about short term fluctuations rather than big picture issues, such as a recent market correction versus the tax changes currently proposed by our federal government, then you’re probably looking down the hood of the truck instead of down the road.

If you’re more concerned about short term fluctuations rather than big picture issues, then you’re probably looking down the hood of the truck instead of down the road.

My best client relationship has evolved from our original work of clarifying Unit Cost of Production by drilling down operating and overhead costs, so that we are now pursuing 5 year expansion strategies and establishing tactics for handing off management activities as part of a transition plan that is still 5-10 years away.

In the next breath, when asked “What is the greatest challenge on farms today,” I regretfully cutoff whoever is asking the question by blurting out “cash flow.”

I see numerous farms who do not suffer cash flow challenges. They experience the same weather, the same markets, the same interest rates. Yet somehow these farms do not suffer under the same cash flow pressure. Why is that?

Perspective.

Successful businesses have a long term perspective. Those businesses recognize the variability in the aspects affecting their business that they cannot control (like weather, markets, interest rates), and as such, they prepare themselves and their businesses for what’s coming “down the road.”

Looking down the hood instead of down the road doesn’t give you time to prepare and react to what’s coming up ahead.

Here is an easy recipe to help prepare for what’s coming up “down the road”:

  1. Understand cost of production, right down to the paperclips.
  2. Get lean in how you manage your operating and overhead costs.
  3. Maintain modest personal drawings.
  4. Eliminate unnecessary assets and the debt they bring with them.
  5. Build working capital to a minimum of 50% of annual cash costs.

By implementing these 5 steps into your action plan before spring, you will instantly be miles ahead of your competitors one year from now.

To Plan for Prosperity

There is no crystal ball in my possession, so I cannot predict what is coming down the road. What I can tell you is that I have seen the effects of business cycles on the unprepared, I have seen the effects of poor perspective on the oblivious. Conversely, I hold great admiration for the business people who had the foresight to control all that they were able to control, including how they were affected by that which they couldn’t control.

What’s your perspective?

What Do You Care About

What Do You Care About?

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What do you care about?

In a conversation with a fellow business advisor recently, the topic was about how much demand for our services there would be this fall considering the drought, rising interest rates, a rising Canadian dollar, and volatile crop prices. He said to me, “The work we do is important; people need our help,” and then went on to say how he expects there to be significant demand from the marketplace for our financial advisory work.

I questioned whether the farming industry is “generally” ready to place enough importance on financial matters of cash flow, profitability, and leverage to create the demand he described. My experience is that there are pockets of business people who see the value and hire the help, but generally the financial woes faced at the farmgate have yet to cause enough pain to spur on action.

Change will only occur when the pain of change is less than the pain of staying the same.

It seems like there is always something more important.

His response, “People will tell you what is important, and very clearly too! It’s their behavior. Their actions show you very clearly what they care about most.”

Based on how farm equipment sales continue to be incredibly strong, despite challenges to cash flow and profitability, it’s not rocket-surgery to figure out what is a top priority among farmers…

Faced with a choice of one response over the other, how would you choose:
What do you care about?
a) Ensuring a profitable enterprise for long term growth and sustainability
b) Having a modern/late model fleet of machinery

a) Investing in the crop that provides your income
b) Investing in an “asset” that is a merely a cost and reduces your profitability 5 different ways

a) Getting bigger
b) Getting better

Years ago (WAY back) when I drove a fuel truck for a living, one of my customers always needed significantly less heater fuel (fuel oil) than any other customer on the regular monthly top-ups during one particularly cold winter. It’s not that his house was that new or air-tight; it was not that he didn’t have the money to pay for the fuel (they were a wealthy family.) It was that, by his own admission, he “kept it as cool as possible in the house, about 64 (degrees Fahrenheit).” This was a family of 6, with kids ranging in age from 10-18, whose comfort was less important than money. By his behavior, it was clear what he cared about most.

To Plan for Prosperity

If you feel like you might be facing a choice this year as you evaluate your financial performance, you won’t be alone. Hard choices need to be made by business-people everywhere, every year, all the time. When considering what choice to make, first ask yourself “What do you care about”. When what you care about is clear, the strategy and the action become obvious.

If you are having difficulty defining what you care about, look at past behavior: it will paint the picture for you.

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It’s Never a Problem Until It’s a Problem

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The first time I heard the phrase “it’s never a problem until it’s a problem” was from Elaine Froese. She is a sought after speaker with farm families on the topics of succession and family dynamics. I recall chuckling at the statement because it is equal parts truth and ambiguity.

Elaine uses this phrase to describe issues among family members, those issues we let smolder without drawing attention to the fire in waiting, those situations that irk us but don’t get discussed because we don’t want to create conflict. The statement applies across the board.

Over my career as a business advisor, commercial lender, and bank branch manager, I’ve seen hundreds and hundreds of financial statements, and one thing is consistent: it’s never a problem until it’s a problem.

Between 2007 and 2013, generally speaking, cash flow was not a problem on western Canadian farms: yields were strong, commodity prices were robust, profits were made. Yet anyone who didn’t consider that those boom times wouldn’t last forever likely didn’t prepare for the effects of the cycle turning downward. Those are the businesses who were most likely to make long term decisions based on short term results. Now there is pressure on cash flow from issues such as excess moisture, or as in the case of 2017, drought. As such, cash flow, which wasn’t a problem in the past is now a problem for many.

“The future will always belong to those who see the possibilities before they become obvious to the typical producer.”

Danny Klinefelter

Danny Klinefelter is the recently retired ag economics professor at Texas A&M University, and the founder of TEPAP. His words, if heeded and practiced, will head off most problems before they become problems!

To Plan for Prosperity

Being a visionary isn’t exclusively tied to seeing the future, it also applies to pragmatically looking at the present. Connecting the dots between the present and an objective (meaning realistic and not overly-optimistic) outlook for the future will help us all identify problems before they become problems. Then comes the hard part: taking action.

top producer

Are You a Top Producer?

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Esteemed economist, Dr. David Kohl, is a fervent advocate of improving business decision making. In one of his recent speaking engagements, Dr. Kohl suggested that top producers can answer Yes to at least six of the following questions.

Top Producer Kohls questions

With only 10 questions on the slate, a positive response to only 6 of them would make you a top producer.
You’ll note that nowhere in those 10 questions will you find anything about actual production…

To Plan for Prosperity

If you are unable to answer YES to at least 6 of Dr. Kohl’s questions, then I suggest you do an internal audit on yourself and your business to determine why. If you are unsure about where to start in doing such an audit, or how to make the changes necessary to be able to answer Yes to 6 of 10 questions, then pick up the phone – I can help.

If six-out-of-ten makes you a top producer, imagine how strong your business would be if you hit 10/10…

CEO Labor

CEO Labor

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When we put autosteer in the tractor, it was my dad who said, “This isn’t farming if you’re not driving the tractor!”

It was a frustrated colleague of mine who said, “When driving tractors is more important than running the business, we’re near the end…”

My friend, Dean Robinson, published a great piece recently on how common it is in family businesses for the owner, the boss, the CEO to “regress” from being the “entrepreneur” back to being the” technician.” While this is common in family business, it seems like an expectation in farming. What I’m getting at is that successfully running a business involves thinking and acting like a CEO, while it is assumed that running a farm means getting dirty and operating equipment with the rest of the guys and gals in the operation. We all say that “farming is a business” but actions don’t appear to support that. Here is Dean’s column in its entirety; put the words in your own context to gauge how they apply to you.

Dean Robinson header

Dean Robinson photo

EDITION 67 – WEDNESDAY 3RD MAY, 2017
______________________________________________________________
TECHNICIAN – MANAGER – ENTREPRENEUR – PART 2

In last week’s edition of Growth, we talked about the evolution from Technician to Manager to Entrepreneur and how many family business owners are regressing from Entrepreneur back to Technician.

Here’s a reminder of the five adverse effects for your family business of this regression

  1. The client exposes themselves to risk if you are doing too much of the work yourself.
  2. You are not growing if you are not communicating often enough at a higher level.
  3. You put financial pressure on the business every time you hop into the rollercoaster of chasing work, finding too much of it, doing all of it, then running out of work again.
  4. Your bank is exposed to risk if the business is too centred around you and your involvement.
  5. Your team don’t see you as a leader, so might take instructions from you, but not direction and inspiration.

The five reasons I have given you above are motivation enough to have family business owners stop and think about why you are dragging yourself back into the role of the technician. However, it is not the biggest.

The number one reason why you should not do this is that I hear too many family business owners expressing unhappiness as to how their day to day life in business is panning out. They are fed up with the constant phone calls, the poor performing staff, the rushed deadlines, the lack of time to do any form of business planning. Yet, they turn up to their business every day and do the same old thing.

Here’s my message:

Stop it! Stop it right now!

You cannot grow a business that is profitable, valuable and sustainable in the longer term if you, the Entrepreneur, are operating at the Technician level.

If you keep falling back into the Technician’s role, you should seriously stop thinking about growing your business and, instead, lower your expectations as to what you want out of life and how your family business can fund that. You should revert back to being a Man (or Woman) in a Van and have a limited customer base that you focus on.

Now, if lowering your expectations is not on the cards, you need to think about what you need to do to ensure you not only put yourself back in the Entrepreneur’s role, but engage the three point racing harness and stay there.

There is an important element to locking yourself into the role of the Entrepreneur. I am yet to see a family business owner that can do this alone. As a family business owner, you need someone alongside you who:

  1. Challenges you.
  2. Forces you to think differently.
  3. Encourages you when you make progress.
  4. Pulls you back on track when you deviate.
  5. Supports you in your journey.

As the owner of a family business, you have complete control over the direction of your family business. However, because you are at the top of the tree in your organisation, most people don’t question you, the decisions you make or the direction you take. Which is why at times, the direction is forward, at others it is round and round, and at others still, it is backwards.

Having someone from outside your business perform this role creates:

  1. Accountability.
  2. A sense of reporting to a higher authority.
  3. A measure of progress.
  4. A degree of perspective.

Do you have someone in your family business life that is working alongside you so that you stay in the role of the Entrepreneur?

 

This Week’s Tip

“If you as the Entrepreneur, keep regressing back into the Technician role, your life will only get much, much busier as your business grows. More work for the business means more work for you personally. Which means less time for yourself and your family. What’s your choice?”

 

ABN 77 613 885 859
PO BOX 533, CAMDEN NSW 2570
(02) 4654 5000 – 0409 207 969
DEAN@DEANROBINSON.COM.AU
DEANROBINSON.COM.AU

 

Copyright © 2017 Dean Robinson Group PTY LTD, All rights reserved.

 

To Plan for Prosperity

The risks that Dean highlighted in his column should provide adequate reason to pause and reflect. Operating at a technician level (as labor) does not afford the CEO adequate opportunity to develop and execute his or her vision. Short term decisions get made from a technician’s perspective which have long term effects that are not given sufficient consideration because the CEO’s chair remains vacant…because the CEO is running equipment and not the business.

Maybe if farm CEOs spent more time in the office and less time in equipment their equipment costs wouldn’t be so high…?

 

Discipline

Discipline

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Over the last number of weeks, we’ve contrasted two fictional farmers and their approach to managing growth, and specifically an expansion opportunity. One failed in his aspirations, the other succeeded. One of the major factors contributing to the results of both examples is discipline.

“Fictional Fred” was lacking discipline. He shot from the hip, and ran his business in a reactionary fashion. He did not make it habit to consider the impact of the decisions he was making, whether it be adding another combine late in the season, or attempting to take on additional land that would equate to an immediate 66% increase in cultivated acres. He recklessly adds equipment to his business which has driven up his equipment cost. This has also come with the cost of damage to his relationship with his primary lenders. Fred behaves in a way that many people think is entitled. He’s done few favors for himself with his recent actions.

“Imaginary Harry” exercises great discipline in how he manages his business. He has a strategy that was constructed with the aid of his trusted advisors. He is confident that his strategy is the best way to achieve his family, business, and financial goals. As such, he establishes operating plans each year that follow his strategy; he maintains a capital expenditure (CapEx) plan that follows his strategy; he sticks with the cash flow and financing plan that follows his strategy. He’ll always politely listen to the pitch of those who are trying to sell him something (because everyone wants Harry to be their customer) but if it doesn’t fit into his strategy, Harry doesn’t buy.

Strategy is not written in stone. Strategy is a a concept as much as it is a plan, and as the CEO you need to be able to adjust your strategy when the environment changes.
Discipline is a character trait, a behavior, that equips a person to avoid distraction and stick to the plan, and as the CEO you need to be able to maintain discipline when warranted, but also be able to permit flexibility when needed.

To test your disciplinary mettle, the next time you face a distraction, ask yourself the following:

  1. How will this decision affect my strategy (my goal) of achieving ___________?
  2. Will this have a positive or negative impact on my cash flow and profitability?
  3. Is this a “want” or  a “need”?

To Plan for Prosperity

As defined by Merriam-Webster, strategy is “a careful plan or method for achieving a particular goal usually over a long period of time,” and discipline is “a way of behaving that shows a willingness to obey rules or orders.”

The strategy is yours, you created it. To not maintain discipline to your own strategy is aptly described by Marshall Goldsmith in his book Triggers: “(you’re) failing a test that (you’ve) written!”

 

Strategy

Strategy

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In the last two issues through prose, we’ve contrasted two differing approaches to managing growth opportunities in a farm operation. “Fictional Fred” shot from the hip, taking more of a “ready, fire, aim” approach to business. That style has a time and place, and even if it isn’t your core modus operandi, there may be situations where you need to act fast to take advantage of an opportunity before it’s gone. In most businesses, however, a gunslinger approach such as this does not make for a long term sustainable enterprise.

By contrast, “Imaginary Harry” ran his business with more precision. He understood that the best way to improve profitability in a commodity production business was to stringently manage all that he could control, recognizing that there is so much that cannot be controlled.

Fred wanted to get bigger, but he overlooked being better. Harry wanted to get bigger only if it made him better.
Harry has a defined strategy that he is acting on, and he is making more money because of it.
Fred’s strategy, if he even has one, is loosely put together, and like that of a sweater of similar description, would come apart completely at the first snag.

Define Your Strategy

A business operating without a strategy is eventually caught up in “the spin-cycle.” Like a clothes washing machine, around and ’round it goes: daily tasks and routines repeated each day, weekly repeated each week, monthly repeated each month, yearly repeated each year. As days, weeks, months, and years go by, without direction and strategy the time marches on and business results fail to meet expectations. Then who is to blame? Let the finger pointing begin!

If your strategy is to be the biggest, then declare it. Make it your success criteria.
If your strategy is to be the least indebted, then declare it. Make it your success criteria.
If your strategy is to continue the family legacy and take over the family business then declare it. Make is your success criteria.

To Plan for Prosperity

The point is not to tell you that your strategy is right or wrong; the point is to HAVE a strategy.
Having no strategy is like shooting targets with a shotgun: you’ll hit something, but it might not be what you wanted.

Fail to Plan

Fail to Plan, Plan to Fail

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Fred* wants to expand his farm. He feels he’s getting left behind when he hears about each land acquisition made by some of his neighbors. It’s not like Fred hasn’t expanded his acres; he’s doubled up since 2005 when he farmed about 3,000. But he knows he can handle more. And by all accounts he needs to increase his acres to spread out his equipment costs; at least that what he hears at all the seminars and reads in all the farm publications. His banker keeps telling him that his costs are too high as well, but she wouldn’t give him a combine loan a couple years ago and the dealer’s financing program did, so what does she know…?

Drawing up plans to seed just over 6,000 acres this spring, Fred can’t let go of the notion that he needs to be at 10,000 acres. There are a couple of neighbors who’ve hinted that they might not put a crop in this spring, and if Fred could take on both, he’d be at 10,000 acres. That would feel pretty good driving through town letting everyone know he was now a 10,000 acre guy! Heck, he might even put it on the side of his truck like some companies do with their safety awards. They’re proud of their accomplishments and show them off, why not Fred?

As he goes over his crop plan, he starts wondering about where he’ll procure his inputs. If he maxes out the lines of credit at both input dealers in town, and the one at the bank, he’ll be able to get everything seeded, fertilized, and sprayed. “No problem,” Fred thinks to himself. He gets on the phone to get prices from each input supplier so he can decide what to buy from whom.

About a week into April, Fred gets the word he was hoping to hear: both neighbors who were considering retiring will not be seeding a crop this year and will be renting out their land. Fred immediately gets in the truck to pay his neighbors a visit to see if he can secure a rental agreement with each of them. To establish good-will and earn the opportunity, Fred offers each $5 per acre cash rent above what they were asking. They shake hands, and Fred excitedly heads home.

Upon sharing the news with his hired help, Fred is too excited about his “accomplishment” to recognize that his lead hand is not happy about what Fred is telling him: the seeding rig will have to run 24 hours since there isn’t time to buy another air-drill and get it field ready. Fred heads back to the house to update his crop plan and to secure more crop inputs.

Two days later, Fred’s world comes crashing down:

  • he is unable to get any more credit to acquire crop inputs for his additional rented land;
  • he has been denied a new cash advance because he was late paying back the old one;
  • he has lost his new rented land because he can’t get inputs and because the cheque he wrote to each landlord for upfront rent payment has bounced;
  • his lead hand just quit to go work for a neighbor who provides a “better work environment.”

To Plan for Prosperity

They key is in the heading title: PLAN

Fred doesn’t plan; he reacts. He is not able to expand his farm even though he thinks he is. He is not as financially strong as he thinks he is because he cannot get more credit when he needs it. He is now short on help to get seeded on his own current acres. Fred wants to be bigger, but he’s overlooked being better.

At risk of “over-flogging” this issue, Fred’s challenge has been lack of working capital. And it is that lack of working capital that has not only directly cost him an expansion opportunity, but indirectly cost him his lead hand.

It’s been said that “if you fail to plan, you’re actually planning to fail.” Fred has become the embodiment of those words. The ramifications of this story go farther than we have time to discuss.

You can avoid falling in with the likes of Fred by enacting control over your future: implement strategic growth using sufficient resources with discipline.

*Fred is a fictional character. The story portrayed above is fictional. Any similarity to a real person or situation is purely coincidental.

 

passion

Passion

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“A business without passion is merely a job.

A passion without business is merely a dream.

Making a business of your passion is a bountiful success.”

This morning I was in an email conversation about “mastering your craft” with a fellow business advisor, an incredibly intelligent woman who also happens to be one of my best friends. It reminded me about one of the points I would make during my many speaking engagements over this past winter: sometimes passion is not enough.

We’ve heard it and read it before. It falls out of the mouths of motivational speakers everywhere. It is seen regularly on daytime talk shows, infomercials, and of course, the interweb. “Follow your dreams…harness your passion…” What if passion is not enough?

There are many who venture into “business” who are either ignorant or willfully blind of the financial and management side of “business.” Often they believe that their skill and their passion are all that is necessary to be successful in business. As Michael Gerber wrote in The E-Myth, “The Fatal Assumption is: ‘if you understand the technical work of a business, you understand the business that does the technical work.’ And the reason it’s fatal is that it just isn’t true. In fact it’s the root cause of most small business failures.”

Just because you’re a great cook does not mean you should open a restaurant.
Just because you’re a great welder does not mean you should start a manufacturing company.

This is not to discount the importance of mastering your craft. Realizing on your passion is a gift too few of us ever get to realize. BUT…if you intend to make your passion into a business, you need to know BUSINESS!

I don’t know anyone anywhere whose passion is “cash flow,” but it is an integral part of business that must be intimately known, or the gap from startup to liquidation could by mighty small.

To Plan for Prosperity

During many of my speaking engagements this past winter, I’ve suggested that a simplified strategy can be 1) Find what you are passionate about, and 2) Determine if you can make money doing it. Passion on its own is not enough.

There is a difference between “business owners” and “people who own businesses.” The former are entrepreneurs; the latter have bought themselves a job. Despite “The Entrepreneurial Myth” as Gerber defined it, all hope is not lost for those who have fallen into it. The people who will be most successful are those who can admit they need help in areas where their passion does not lie.

“Do what you do best, and get help for the rest.™”

 

 

Cycles

Cycles

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The weekly op-ed by Kevin Hursh in the Western Producer is a regular read for me. His recent column, Taking Risks OK, but prepare for the next downturn is another resounding piece clamoring for farmers to sit up and take note.

Bullet proof your balance sheet during the good times, so you can catapult ahead of your competitors during the bad times.
If you get greedy during the good times, you’ll likely be on your knees in the bad times.

-Moe Russell, Russell Consulting Group, Iowa USA

We’ve all seen enough charts and graphs over the years to be able to acknowledge and recognize the cycles of the past. Has anyone ever been able to consistently predict a cycle’s beginning, end, or severity? Certainly few, if any, in the energy sector could have predicted what they are going through right now…

Your business produces commodity, and in the commodity business you have no control over the cycles that affect it. Recognizing that cycles will always be present and will always affect your business is the first step. The next step is to prepare.

The future will always belong to those who see the possibilities before they become obvious.

-Danny Klinefelter, Honors Professor & Founder of TEPAP, Texas A&M University

Hursh writes, “While no one can predict the future, it’s probably naive to think that grain prices will always be this strong relative to production costs…it would seem equally naive to think that a world grain glut couldn’t cut grain prices by a third or even by half for a prolonged time period.
” If you follow ag-economic news from the US midwest, you’ll know that farmers there have been under significant pressure, land values are dropping, and lenders are reducing credit limits and tightening lending terms. I’ve asked on a number of occasions, “Who thinks this can’t happen here (in western Canada)?” (ref. Twitter)

Market cycles will hurt some, but offer opportunity to others.
The difference between who suffers and who prospers is…Who’s Ready.

– Kim Gerencser

To Plan for Prosperity

If adhering to the advice in any of the three quotes above, to “bullet proof your balance sheet” & “see the possibilities” in order to “be ready” for the next round of business cycles…well, you better get lean!

While LEAN is possibly best known as a system of techniques and activities for running a manufacturing or service operation, in the context here LEAN means “sans fat.” Trimming the fat from your operation is a primary step to solving cash flow challenges, increasing profitability, and reducing risk. Driving down your operating costs is key to consistent profitability in a time when yields, production quality, and markets are anything but consistent.

Next, reduce the impact of emotion on your business decisions. Two basic human emotions, fear and greed, often have the biggest impact on “why” and “when” bad decisions get made.

In closing, your pragmatic 3-step plan to prosperity during cycles in the commodity business are:

  1. Get lean;
  2. Eliminate “fear and greed” from impacting business decisions;
  3. “Do what you do best, and get help for the rest™”