Soil Testing Home Farm

Soil Testing Season

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This is the time of year when soil probes all over the prairie are taking samples of the soil that provided the crop in the current year and will provide another crop next year. It’s an annual “check-in” to see what’s left.

It was the same about a year ago. We check what nutrient levels remain after harvest, consider what crop will perform best in each field next year, and begin to apply appropriate nutrients (following the 4R’s of Fertility: Right Source, Right, Rate, Right Time, and Right Place) in fall and/or in spring. The crop get’s sown, produce get’s harvested, and we check the soil again. Based on what we started with, what we added, and what the crop used to through the growing season, we compare to what is left in the soil to evaluate how efficient our fertility program was.

If it wasn’t as efficient as it could have been, we examine the effects on our production (moisture, heat, disease, insects, etc.) and we examine our own role in the process by questioning if the seed tool did a good enough job; how about the sprayer? Often time we use weather as the justification to acquire bigger, newer equipment to “get the job done faster.”

What if the entire industry, not just the progressive managers but the entire industry, used that same methodology in analyzing profit and cash flow? It might look something like this:

This is the time of year when spreadsheets all over the prairie are being used to tally up the performance of the business over the last growing season. We start with the working capital we had after last harvest, consider what crop will perform best based on your crop rotation and market outlook, and begin to project input costs and yield & price for each crop. We enter expected operating and overhead costs into a projection, and convert those projections to “actuals” as the year progresses. Once harvest is complete, we evaluate working capital again.

If profitability and cash flow was insufficient to meet expectations, we examine if operating costs stayed within budget or not (and why), we examine if overhead costs were projected correctly or if we let both operating and overhead “get away” this year. What did we not foresee? What did we properly plan for? Did we market appropriately?

The practice of soil testing compliments crop and fertility planning. These are crucial steps to take to create the most efficient plan. Remember, you need to produce at the lowest cost per unit possible. Period. Hard Stop.

The practice of checking financial performance is similar to keeping score. It would be awfully tough to know what adjustments need to be made during the game (growing season) without knowing the score along the way.

To Plan for Prosperity

It’s been said by agronomists that soil testing is “seeing what’s in the bank account” and they carry on in supporting that analogy by stating that no one would write a cheque without knowing what the bank balance is first. Sadly, there any many people who do both: write cheques without knowing what’s in the bank and plant crops without knowing what’s in soil. One won’t break you, the other could.

Knowledge is power. Knowledge comes from management. Management requires measurement. Test your soil (financial performance), because if you don’t measure it, you can’t manage it.

 

**Side note: the photo is from my farming days, and provides a glimpse into the soil I used to farm. I found it interesting to so clearly see the A, B, and C horizons in a single core. **

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.

Per Acre Equipment Investment

Per Acre Equipment Calculation

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In the June 8, 2017 edition of the Western Producer, columnist Kevin Hursh penned Per acre equipment calculation can be revealing. As is typical, Hursh hits the nail on the head with this piece by suggesting farms should know their equipment investment per acre. His column goes on to describe how new equipment has seen significant increases in SRP (suggester retail price) over the last few years, contributing greatly to the elevating of the “per acre equipment calculation.”

First, let’s figure out where you are at. Add up the current value of all your equipment, owned and leased. If that total is $2.5million, and if your farm is 5,000 acres, your equipment investment per acre is $500. If we compare that to a 2,500 acre farm with $1million invested in equipment (therefore $400/ac), who is better off?

Measure it against earnings

Last year, I had a client tell me about a meeting with his lender. This particular client is small acreage, relatively speaking (under 1,000ac in crop) and yet was quite well equipped for his acres. He carried minimal debt, and despite some cash flow challenges over the previous two years, his working capital was still very strong. He was seeking a high-clearance sprayer so that he could ensure timely fungicide applications for his lentils, and other high value crops. The feedback he received from his lender was that his “equipment investment per acre was to high.” On the basis of that single calculation, it most certainly was. What the lender failed to evaluate was the entire farm profitability. Because of the small acre base, my client was able to produce a rotation of high-management high value crops. His net profit per acre was almost double a typical grain farm. His ability to justify a high equipment investment per acre was evident. Needless to say, he acquired his sprayer (a used model valued at just north of $100,000) pushing is equipment investment per acre from $484 to $644.

Let’s go back to the 2 fictional examples above.
EBITDA vs Per Acre Eq InvIf we only looked at equipment investment per acre, we would likely conclude that Farm B is in a better situation by only having $400/ac invested in equipment versus Farm A having $500/ac. Yet when we dig further by bringing EBITDA into the calculation (EBITDA is Earnings Before Interest Taxes Depreciation & Amortization) we discover that Farm A generates stronger EBITDA per acre than Farm B, and is therefore possibly justified in having a higher investment per acre in equipment. In practical applications, even this doesn’t go far enough to determine which is better, but it’s a start.

To Plan for Prosperity

Delving into management calculations can be daunting and confusing. If we don’t know what to look for, how it compares, or even if we’re not measuring anything, we’re already behind before getting started. Begin by measuring the many facets of your business; in this case, “What is your equipment investment per acre?” How has is changed over the last five to ten years?

Relating back to my client, his EBITDA was a whisker under $120/ac, so his EBITDA to Equipment Investment on a per acre basis was about 0.186:1. This means that with his equipment investment of $644/ac will generate about $0.186/ac in EBITDA. Is that a good metric? As Kevin Hursh closed his column, “It’s unfortunate that more information isn’t available on the typical investment levels in each region. That would allow producers to make more relevant comparisons.”

Better is Better

Better is Better…

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Would you rather make $50/acre profit on 20,000 acres or $100/acre profit on 10,000 acres?

This is a question I ask any farmer who admits to pursuing aggressive expansion. As was aptly described in a recent edition of FCC’s AgriSuccess  in May 2017, journalist Kevin Hursh discusses cost effectiveness of farm expansion with Kristjan Hebert. Kristjan has been quoted in this commentary a number of times in the past because he is the first person I hear using the term “Better is better before bigger is better.” To his credit, he admits that it isn’t his phrase; he heard first heard it from someone else.

The question posed at the beginning of this piece is meant to evoke an admission of any business flaws that have crept in to the practices and decisions that drive aggressive expansion.

The point is acknowledge that for all the risk undertaken in the operations of any agricultural enterprise over the course of one year, the end result must recognize the effort involved and the risk taken. If you’re working harder and risking more, why would you accept less profit? True, the linear dollar profit is the same in this example, but the profit per unit (in this case, per acre) is half. Anyone who can prove that their whole farm costs, right to the paperclips, are also halved is welcome to step up and prove that bigger is in fact better. I’ll wait…

There are many advisors who have questioned why any commodity production business would want to rapidly expand before doing the best job they can on what they already have. The argument on what led to the mindset of expansion at all costs hasn’t been settled in over 20 years, and won’t be settled here today. But in the end, we can do better, we must do better, because now we know better.

And the words are true: Better IS Better…

To Plan for Prosperity

This week’s piece is purposefully pithy. It is meant to drive awareness of the “Costs and Effects™” of the decisions made in our businesses. Every choice we make has a consequence, and to truly “be better,” we must evaluate each business decision on its merit, not how it makes us feel.

While bigger can sometimes be better, it’s guaranteed that better is always better.

 

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!”

 

Expansion Plans

Expansion Plans

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Harry* is one of those subtle role models that every farm community has. While no one treats him like royalty, nor does he act like it, everyone knows Harry is highly respected, not just here at home, but in the agriculture community across the entire province. He has quietly, and diplomatically, build his own little empire.

Most people wonder how Harry has done it. True, they are a little envious, but they cannot understand how Harry could be so well off compared to most others in the area when he gets the same weather, he farms similar soil, and grows similar crops as everyone else. Harry’s yard is always neat and tidy, his buildings are clean and kept up, and his “not new, but not old” line of equipment shines like a new dime despite some of it being over ten years old. There are three new 60,000 bushel bins going up this spring, and a concrete pad has been poured which, if you believe what you hear on coffee-row, is for a new grain cleaner.

Harry has expanded his crop acres a little at a time, never making a big splash in the market. Neighbors usually come to him because they know he is a character guy: he always pays his rent on time, he respects their land, and he keeps them informed. Through rent and purchase, Harry has taken the 1,200 acres he inherited from his parents in 1984 and has grown it to 8,600 acres today. He owns about 6,000ac and rents the remaining 2,600.

Harry heeded some sage advice when he started out. He was told that production is only part of the equation; the haughtily delivered quip stuck with him through the years, “Farmers don’t get paid for growing it, they get paid for selling it!” While production is incredibly important in the commodity business, Harry learned early that in the commodity business you have to produce as much as possible as cheaply as possible. Efficiency of finances and expenses, not just operations, would be key.

Harry has worked diligently to keep his costs down, especially equipment. Despite easy credit and low interest rates readily available, Harry has stuck to his guns when solicited with discounts and deals on newer equipment. He has drilled down on every operation on his farm, and can tell you quite accurately what his entire cost is per acre, including labor and depreciation, for seeding, spraying, harvesting, and trucking. He knows off the top of his head when he is better off hiring custom work or doing it himself by comparing the custom rate he is quoted against what he knows are his “all in” costs.

Harry recognizes that he cannot be an expert at everything. He knows he is an operations expert because he has managed his costs to their lowest reasonable point and because he manages his crew and makes all logistical decisions to get 8,600 acres seeded and harvested with greater efficiency every year. Harry knows he is not a human resources expert, so he’s taken coaching in order to improve his employee relations; he knows he is not an expert in international grain markets, so he’s hired an advisor and subscribed to market intelligence services, he knows he’s not a financial expert so he heeds his banker’s advice and has even hired a financial and capital expert to increase his confidence in the decisions he wants to make.

Harry has been thinking about expanding the farm for a couple years now. His two children, now in their early twenties, have shown a real penchant for the farm. After taking his advice to work somewhere else (either in or outside of agriculture) and to get a post-secondary education, Harry’s children have solidified their dedication to the family farm, bringing with them their outside work experience and their formal education: one with a Bachelor’s of Science in Agriculture, the other with a Bachelor’s of Commerce. The kids get along fine, and work very well together. Their differences in interests and education will bring a real synergy to the passion they share for the farm. Harry is incredibly proud.

Two of Harry’s neighbors have been thinking about retiring for a number of years now. Being the proactive strategist that he is, Harry has been discussing the possibility of expanding the farm with his advisors. Today, Harry is supremely confident that he knows exactly what upgrades need to be made to equipment and labor, and how it would affect his balance sheet, income statement, and cash flow, should he be successful in taking on more acres.

When Harry heard that Fred’s effort to rent the land of both neighbors came up short, he was honored when those neighbors came to Harry and asked him to rent their land. Having been planning for this opportunity for almost two years, Harry has been aligning his resources and as such he has abundant working capital to take on about 2,000 acres from each of his two new land partners. After having coffee with each neighbor for a couple hours, Harry has acquired the knowledge he needs and now knows what he will seed on which field. He calls his supplier to inform them of the additions to his original corp plan and procures the required inputs. Despite it being early April, Harry gets everything in place smoothly. He knows full well what a stressful mess this new land would be if he just tried to pull the trigger without planning for how to get it done.

To Plan for Prosperity

If the story above sounds too idyllic, please know that Harry’s last name is not “Perfect” (Get it? He’s not “Mr. Perfect”!) Harry hasn’t done everything right, and he doesn’t do everything right on a daily basis. What he has done different, what he does so well is that “he knows what he knows, and he knows what he doesn’t know,” and as such, he has equipped himself with the right help and advice to fill the gap. What might be the most important thing that Harry does well is that he makes a plan, and uses great discipline to not allow temptation to lead his plans astray. He avoids the temptation to increase his costs from high priced equipment or fancy yield-exploding elixirs. He maintains his strategy of keeping costs down, and protecting cash flow & working capital as the life-blood of his business that it is.

If you asked Harry, he’d admit that there are many decision he would have made differently from knowing what he knows now. But, being strategic and disciplined has allowed Harry to grow his business, not only in size and scale, but in efficiency, profitability, confidence, comfort, and lifestyle.

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

 

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.

 

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™”