The Business Confidence Maximizer™
August 2010 Issue
Published by John Ellsworth,
© Success Strategies, Inc.
Dan Sullivan, founder of The Strategic Coach organization stated that “people do strange things when they have no future.” Since this is undoubtedly true, I have attempted to keep my Clients on the leading edge by providing them with a system for setting regular business objectives and keeping them as far away as possible from the dangers often encountered in their industry. The purpose of this article is to demonstrate a working model for completing this process – one that we can revisit as often as needed.
It might be best to start by answering five basic questions. Why take the time to set these goals and develop a Disaster AgendaTM?
I often hear people refer to the goals they have set for themselves. When they do, they often say that they have them all firmly planted in their head. However, my experience has taught me that this just does not work as well. It is imperative that we get them down on paper since it makes us completely focused in our thinking about what we wish to accomplish. If you try to do this “just in your head,” you will find that it is too easy to get distracted by other issues, and we are all faced with distractions every day. Thus, commit them to writing, and your goals are much more likely to be reached. Even if you write them down and put them in a desk drawer, your subconscious mind will go to work on them.
How do you get started on this process? I believe that corporate America has done a great disservice in this area. During my time in corporate America, I constantly felt inundated with demands on my time. “Do this, do that, achieve the impossible! We know we didn’t provide you with your annual goals until April and they may be high, but you should have been planning for this type of production demand…” and so on. This is crazy! Why not set aside some quiet thinking time to establish new objectives for the next 12 months.
When to complete this is the best part. While it may be a “corporate sin” to set aside work time to do such planning, you will definitely be rewarded with better results. I cherish the two days each fall that I take to get away and set new goals and objectives for my business. Take advantage of this time to move your business forward.
What should your goals center on? Challenge yourself to set goals in areas that you can reasonably expect to make progress. Please note that I did not say “easily” expect to make progress. Your goals need to be challenging and set high enough to keep you excited about reaching them. However, they also need to be achievable. Otherwise, you will get frustrated with them and give up. You do not need that outcome!
I will leave the when and where part of the process up to you. As I stated earlier, I spend two days per year off site (to minimize distractions) planning my next year. Believe me; this really has paid off for my business. I normally complete this process in November of each year. This allows me to review what happened during the prior 10 months of the current year and also look ahead to what I want to accomplish in the next calendar year. I always do this off site, simply because I want to be able to focus on my objectives without any distractions. I believe the elimination of distractions is imperative to the success of this process, but you decide for yourself.
Now, let’s go one step further. I also work with Clients to develop a Disaster AgendaTM. What is a Disaster AgendaTM? It is a list of the three worst things that could happen in your business and how you would respond to them. When you complete this process, you accomplish several tasks:
1.) You will be better prepared if one of these crises actually does occur.
2.) You are more likely to avoid these crises, due to your increased awareness of their potentially occurring.
3.) If one of these problems, or something similar, does occur, you will have a response or action plan ready to go, yielding a quicker turnaround and saving you both time and money.
Need some examples? Here are five that I previously wrote about in 2002. They still make sense today, but think of three that fit your experience and your operation.
1.) Environmental Pressure – This is an area that is worthy of some serious review. In the February 2002 issue of California Lawyer there was an article that focused on the CRPE organization and its mission in bringing all dairy expansion to a halt in California. How will you respond if your dairy business is sued for potential damage to the environment, whether the claim is legitimate or not? These types of lawsuits are not going away anytime soon! Litigation is a costly process, particularly when you consider the legal costs and the expenses associated with capital projects “held hostage” in an unfinished state that does not lead to your intended increase in cash flows. One solution might be to pursue the training that is available from various agencies. This is time well spent.
2.) Losing Financial Control – As the number of dairy operations in the US continues to decrease (76,630 in 2001) and average herd size keeps increasing, it is more critical than ever to maintain control over your operation’s finances. Regardless of industry, businesses often run into trouble when they expand in a rapid, uncontrolled manner. The primary reason is they run out of cash. One of the best preventative measures against this problem, as covered in prior columns, is to work within the guidelines of an ongoing strategic plan with detailed financial projections. Another helpful item is to know your costs/hundredweight on a historical basis and for future projections. Increasing the size of your dairy is no excuse to lose control over costs/cwt. In fact, the economies of scale you should enjoy with a larger operation will allow you to spend money for better accounting information, assuring that you know your break-even point.
3.) Inability to locate financing – This has been the case for many producers across the US as they attempt to expand their operations. This trend toward tighter lending standards actually began in late 2000. In an effort to avoid a credit crunch, some borrowers have accepted excessive short-term financing when they should have focused on additional long-term financing. Unfortunately, having the wrong loan structure always seems to “rear its ugly head” at the most inopportune times, e.g. during a period of low milk prices as we saw in 2002 to 2003. A potential solution: Grow your business with better financial records to help you maintain a loan structure that yields Debt Service Coverage of at least 1.25 times the level required to make your loan payments. Having good financial statements can go a long way toward avoiding unnecessary challenges in finding financing.
4.) Loss of your Milk Market – Recently, I visited with a dairyman that had suffered the loss of his milk market due to a sudden change among the players in his area. It literally cost him in excess of $30,000 monthly for six months before he was able to get the situation under control. What would you do? Eventually, he was able to negotiate a better contract with a new buyer of his milk. However, his losses in the short term were enormous and help remind us of the vulnerability we face as a “price taker.” This could also occur if your herd was suddenly faced with a major health problem. These potential cash flow shortfalls further reinforce the need for cash or available credit at all times.
5.) Sudden Loss of Key Personnel – Whenever a key worker departs, particularly on short notice, it is essential to have a plan in place to cover for them, at least in the short term. These departures clearly illustrate the need for team development and the cross training of personnel at each key position. Attractive benefits, retirement plans, insurance and competitive pay help to avoid this type of crisis. However, it still pays to have a backup plan in place.
This list of potential crises is far from exhaustive, but hopefully it will stimulate your thinking as you develop your own “Disaster AgendaTM.”
Financial Tips for Success
For an example of a format for this process, visit our “Tools” section at www.Success-Strategies.com.
Management Team Meetings (MTM) Future Topics:
As a regular part of our discussion on Management Team Meetings, I suggest that you include the following items at every meeting:
1.) Herd Management Issues
2.) Herd Health Update & Concerns
3.) Herd Reproductive Performance
4.) Nutrition Update
5.) Financial Review, including what is happening within the dairy industry.
6.) What are the three most important Goals that you should strive to attain during the next 12 months? What are the top three Disaster AgendaTM items that could occur in your operation? How would you respond if they do occur? Discuss these with your Management Team to develop the best plan for your dairy, your budget and your available financing. Remember, for a useful outline, go to www.success-strategies.com and look under the “Tools” section.
Monthly Reminders – W.I.N.
(What’s Important Now?)
As you move through the current year, do you have some challenges that you need specific assistance with? Is it something your Management Team can help you with to find a solution? If so, add it to your MTM list of topics.
Next month, I will discuss a process that I use with Clients to track their month-to-month cash flow. I call it their Cash Flow ComparisonsTM. This is a process we use to keep expenses in line with our plan and to ensure that we catch any problems before they even have their CPA prepared financial statements completed
As a reminder, every suggestion in this issue of The Business Confidence MaximizerTM is intended to keep you on the leading edge of your financial relationships. Remember, stay ahead of the game and deal with any new hurdles you may face in a timely manner. Always focus on your overall margin and the plan that will get you to the finish line.
“Plan for the future or you will have no future.”
Jim Taylor, Futurist and Author