One thing we appreciate most is the sense of optimism John brings to the Success Strategies AdvantageTM process!
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What a tumultuous year! The last twelve months in the dairy industry looked like a cross between two of Dr. Seuss’ children’s books. On the one hand, it parallels If I Ran the Circus with its irrational supply and demand, particularly on commodities that are plentiful in comparison with their current usage, yet remain overpriced. On the other hand, our industry scenario seems to be replicating Stop That Ball with an economy that appears relatively lifeless, yet in other ways seems completely out of control when we look at the painful process of loan approvals and the dramatic changes in real estate. Hopefully, things will be appearing more normal again soon!
However, just in case they are not, it may be a great time to re-examine your game plan and determine what your mode of action will be. Whenever I get into a situation like our current one, I like to check out what several of my favorite business authors have to say:
- Seth Godin in his book entitled, The Big Moo, advises us to “Stop Being Ordinary.” He suggests:
- “Embrace the Power of Storytelling to bring it all Together” – Be like Medtronic, a blue chip medical technology company, who, when their team needs some motivation, they bring in patients and ask them to talk about how a Medtronic product has changed or saved their life.
- Rudy Giuliani, former mayor of New York City, shared the following suggestions in a presentation that I recently attended:
- Have conviction and strong beliefs. Stand by what you know is right.
- Be an optimist. He shared the story of the legendary Coach Vince Lombardi, who, after his team was defeated, was asked by a younger coach how it felt to lose. Lombardi replied, “Son, I didn’t lose that game. I only ran out of time!”
- Be positive and always visualize a “hit.”
- After reviewing what you know and anticipate, take action, and he added, courage does not equal the absence of fear. It is acting in spite of it.
- Practice and rehearse. Have a plan in place to cover most things and even some of those you don’t normally think of.
- Remember, teamwork is key! Ask yourself, what are my weaknesses? Where do I need help?
- You have to communicate. Let people know what you are thinking. This holds for employees and your banker. They both need to know!
In summary, this is a time to build success:
- Keep things in perspective. Is the economy tough? Yes, however, interest rates are quite low for now.
- As former Microsoft President Rick Belluzo stated, “Enjoy the opportunity to reinvent yourself. When I was displaced, I knew that it wouldn’t be the only hardship I’d face in my career. Rather that dread the future, I became eagerly excited. I looked forward to facing additional experiences that would require me to ‘reinvent’ myself.” This represents good advice for all of us.
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Use the following questions on the financial analysis of your business. The first question, “What is our current performance?” In the area of finance, we would naturally consider measures such as profitability, cash flow and debt service coverage. Many of us study expense items when our revenue is lower, as in 2006. I would challenge you to review these line items in the good times as well. It is easy to let costs slip upward when there is less downward pressure on milk prices and cash flows.
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Previously, I talked about how to come up with ideas to improve your operation and implement positive change. “The Best way to manage change successfully is to create it.” Peter Drucker in his book, The Daily Drucker, discusses how to be a Change Leader! “One cannot manage change. One can only be ahead of it. In a period of upheavals, such as the one we are living in, change is the norm. To be sure, it is painful and risky, and above all it requires a great deal of very hard work.”
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Wow! Wasn’t 2009 a real tragedy in terms of overall cash flow and bottom line results? It was absolutely pathetic for most producers. Since then dairymen have been enjoying the fruits of higher milk prices. How can we avoid revealing the same calamities again? What could you have done differently as a manager? These are critical items to spend some time on.
The world of finance continues to amaze me. Recently, I had two clients whose banks decided that, in their opinions, they can no longer survive.
Well, well, isn’t that interesting…I don’t want to rain on anyone’s parade, but they had already survived! We had been in the process of rebuilding their working capital and positioning them for a better outcome during any future downturn. Learn from the past, and see what needs to be changed. For those items not optimal, let’s adjust our course so we achieve better results going forward.
I’ll give you an excellent example that had recently happened with one of my clients. We approached the bank with the possibility of refinancing their real estate and moving some short term debt onto their real estate. This is not that unusual of an approach to restructuring someone’s debt load. Nonetheless, it was an excellent example of how something as simple as a debt restructure can turn an operation around. This client achieved a positive monthly cash flow within 2 months! As you can imagine, they moved forward in a very positive manner when milk prices climbed. The lesson here was that if their lender had dwelled in the past, they would still be struggling with their cash flow today.
What can we do to position ourselves for a better future? First, here are a few things not to do:
- The worst strategy is whining. Whining is rarely a successful response, so stay proactive in managing your operation.
- Do not, under any circumstances, burn any bridges. Successful businesses are built upon RELATIONSHIPS. Develop them and guard them closely.
- Don’t attempt to “spend your way out of a business slump.” Analyze your capital expenditures and operating expenses.
Here are some items you should do for your business:
- Be proactive. Study your business and make smart decisions. Consult with your lender.
- Utilize your professionals wisely, and seek advice from the right people.
- Are you having your Accountant prepare regular accrual financial statements? If not, you are missing one of the best tools available to your dairy operation. They will also assist greatly in obtaining the financing you need.
- Take a close look at developing a marketing plan for your milk. Look closely at Put Options to place a floor under your future milk prices.
- Finally, develop a plan. This should be a guideline that includes each of the previously mentioned items.
Develop your plan and include your lender in it. Then, you won’t be asking yourself where all the lenders have gone. They will be knocking on your door.
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One of the most common problems faced by many businesses today revolves around their ability to obtain financing they need. This challenge becomes even more pronounced when we are faced with a tight lending environment. This has been compounded by the Sub Prime Mortgage mess and its related financial issues! This certainly magnifies the importance of maintaining a solid banking relationship.
Whenever one of my clients or a prospective client I am working with gets turned down on a loan proposal, it is imperative that we review the facts and explore “why?”