Are You Really Prepared?

Following the dismal prices of the last three years, especially in the dairy industry, I am certain that if I asked anyone if they were prepared to receive higher prices, they would respond by saying, “Of course, I am. Are you kidding me?” Yet, I would ask, once again, are you truly prepared? Are you 100% ready?

Here is how you will know. As prices in your industry rise, are you totally prepared to hit the ground running? I know it’s been tough the last three years in the dairy industry (and this can apply to any industry), but if you are really prepared, you should have a plan to complete the following tasks:

  • To move forward & return to profitability. A sound financial projection will tell you how soon you can expect to reach this level.
  • To catch up on any and all Accounts Payable that are not current.
  • To pay down your Lines of Credit as much as possible, as soon as you can.
  • To make the changes & improvements necessary to boost your Profitability.

If you don’t have this plan in place before your revenue levels increase, you could fall into the trap I’ve seen so many times before:

  • You slog along with your Accounts Payable, reducing them somewhat, but with a fear that if you pay them all the way down to current levels, you might need that money later. While that need may be partially true, if you get these paid down, I’m sure your Vendors will be more willing to work with you in the future. Likely, your banker will be, too.
  • You resist reducing your Lines of Credit, fearing, once again, that you may run short of cash & justifying this inaction by saying, “Hey, it has been rough.” No one will disagree that it has been difficult, but lenders can only work with you within their standard lending guidelines, so do all you can to reduce your lines of credit when you are able to do so.
  • You just get your plans in place to initiate the improvements you know you have needed to complete, and then, “BAMM,” you are hit with low prices again.

There is a better way. Here is your Call to Action:

  • Develop a Plan, as outlined above.
  • Set your priorities. If you are behind on Accounts Payable or other items, you may not be able to correct them all at once. However, do not let what you cannot do (e.g. paying them all back at once), keep you from doing what you can do (e.g. an orderly repayment of Accounts Payable).
  • Determine what you will need going forward to make your business more successful. Then, you won’t get caught flat-footed, wishing you had taken action sooner. Instead, maybe you’ll be talking to your banker about your next great move forward!

If you would like some assistance with this process, I offer you the following. On July 31, 2017, our completely redesigned website at Success Strategies, Inc. went live. You may want to take a look at a new video series we call The Strategic Gameplan Series, which will be listed under our Financial Techniques at www.success-strategies.com. Check it out. It may be just what you need for an entirely new game plan!

 

What’s the Difference?

I’d like you to think about two words and compare what they can mean to you as you move forward in your business and life.  The two words are “Reactive” and “Creative.”  While they are both spelled with the same letters, they have quite different meanings, don’t they?

When I am working with my clients to develop their business strategies, one of the greatest gifts that I believe I can give them is to teach them to be more creative and less reactive.  This is especially true when we are seeking financing from their bankers, and I will get into that more in a moment.

I believe it is crucial that we always remember that each of these Clients, or any other person for that matter, is going through a transition.  This is their “journey,” if you will.  Whether they have been on the brink of a financial disaster and want to restore their solvency and then go on to higher levels of prosperity, or they simply desire to get better at what they do, they all want greater levels of clarity.

To achieve this, the key is to know where you currently are in terms of your finances and proximity to your long term objective.  Understand what you want to accomplish, and just as significantly, understand your “Why.” Why do you want to expand your business?  Is it to earn more, to allow for your son or daughter to join you in the operation, or is it to position your business for a better sales price when you decide to retire?

Believe me.  If you know where you currently are, what you want to achieve, and have a firm grasp of “Why” you want to accomplish this goal, the steps you’ll need to take will become much more evident.  You will start to see what you are lacking and then be well positioned to obtain those necessary items.

This has always been the case whenever you need new financing to complete your goal.  If you can explain to your lender what your goal is, why you want to pursue it, and the steps necessary to get there, most bankers are quite good about providing the funding you will need, assuming it makes financial sense.

I believe that if you really want to accomplish anything in life, this is the process you need to follow.  Know your starting point, where you want to end up (the Goal) and then evaluate what you are lacking in order to refine the steps you should follow to get it done!

On August 1, 2017, our totally redesigned website at Success Strategies, Inc. will be completed, so you may want to take a look at a new video series we call The Strategic Gameplan Series, which will be listed under our Financial Techniques at www.success-strategies.com.  Check it out, because it may provide you with the foundation you need for an entirely new game plan.  I think you will be glad you did!

Building Your Business Confidence

Have you ever had a time in your life when you didn’t necessarily feel like your confidence was as high as you’d like it to be? I have. In fact, I think we all have some times like this, especially when things around us are not going as smoothly as we had planned for them to go…

It’s hard to feel very confident when industry events put you in a position of losing money regularly. Unfortunately, negative financial returns can cause us to start asking ourselves some tough questions: “What am I doing wrong? How long can I hold on, given my losses and my current equity levels?”

I am sure you’ve heard the age old advice: “Be careful what you ask for. You just might get it.” With that in mind, let’s shift our focus to a much more proactive approach, because these negative questions can, indeed, take you to some very disappointing and depressing results. I have had the honor of being directly involved in the financial turn-around of numerous businesses during the past 19 years. However, in each of these circumstances, I felt it would be beneficial, rather than focus on how long this Client could “hang on,” to shift our attention to a far more proactive direction.

While the “dangers” of their financial situation were always in the back of my mind, I believed their business turn-around would require us to correct their course and get back on track. Oh, wait a minute. Getting back on course would require us to know what our destination actually was. It would require us asking: “What’s next? What do we want to achieve? What do we need to do in order to get there?”

My advice has always been: Slow down, Think & Plan. Remember, if this was easy, everyone would do it. However, it isn’t always easy, and so, people don’t do it. We all like shortcuts, but don’t fall into that trap on this task. I want you to be different. I want you to do better. I want you to succeed!

Rather than focusing on what can go wrong or how long you can hang on, focus on something totally different – what you want for your outcome! Following this strategy has served me well in these turn-around situations. I’ve seen businesses that lost $2.5 million one year turn a profit of $39,000 the next year. Was that phenomenal, in and of itself? Probably not, but even their banker had to admit that there was some hope going forward, which allowed them to work with us to get the business refinanced. They did go on to turn larger profits in future years, and this was a much better outcome for all those concerned, including the lender, as we moved forward.

What to do?

  1.  Set your Goal.
  2.  Know “Why” you want to reach this objective.
  3.  Lay out the necessary steps to achieve this.
  4.  Put dates for each of these action steps.
  5.  Take Action and continually move forward.

If you follow this process, I assure you, it will build your confidence and prepare you to discuss these steps with your lender, simply because it will equip you with answers to the questions that she will be asking. What do you want to achieve, why do you want to do this, and what are the actions necessary to accomplish this? With the answers to these questions in front of her, we can both be more confident she will be better prepared to help you.

If you would like some assistance with this process, I offer you the following. On August 1, 2017, our redesigned website at Success Strategies, Inc. will be completed, so take a look at a new video series we call The Strategic Gameplan Series, which will be listed under our Financial Techniques at www.success-strategies.com. Check it out. It may provide you with the foundation you need for an entirely new game plan.

 

The More it Changes, the More It Stays the Same…

Recently at the Western Dairy Management Conference in Reno, Nevada, we heard an excellent presentation by Mike Lormore, Director, Cattle & Equine Technical Services at Zoetis, regarding the various profitability variables all producers contend with in their daily operations. The presentation, entitled “What Drives Financial Success on a Dairy?” was based upon extensive research with Ag Star, a leading dairy lender in the upper Midwest.   I believe this presentation was exactly on target with what I have seen in my consulting work during the past 19 years. While there are many profitability variables to contend with, and this research does not suggest that ignoring one of the lower correlated variables would ever be a good idea, the top three are all ones that I have had the opportunity to deal with in each and every financial turn-around situation. They are the ECM level of the dairy operation, its 21-Day Pregnancy Rate and its heifer survival rate.   Let’s explore why these are the top factors:

  • Energy Corrected Milk per cow per day – This is fairly basic. Most dairies get paid for the amount of milk they ship to their creamery, whether it is higher in components or simply greater in milk flow quantity. As long as they are keeping feed costs and other expenses in line, the higher ECM herds will tend to be more profitable. Now, before you write me to tell me about the exception you found to this rule, please remember that we can always find exceptions to every rule, but this rule holds for most herds. Somatic Cell Count is also a factor here – think milk bonuses! Creameries only give these financial incentives for lower SCC.
  • 21-Day Pregnancy Rate (or risk) – I have seen this in so many difficult financial situations. Low Pregnancy Rates equal financial challenges ahead. Simply stated, a higher pregnancy rate leads to more pregnant cows, which leads to more fresh cows, which then leads to more milk, which certainly helps to pay more bills, assuming all other factors are consistent within a given dairy business. More ECM, as outlined in #1 above, is more profitable. For most dairies, this higher ECM only comes via more fresh cows, which is a direct result of getting cows pregnant sooner. I have Clients who regularly push a 30% PR, and their higher PR leads to more fresh cows and higher levels of ECM.
  • Heifer Survival Rate – It is incredible to me how many operations that have financial challenges ignore their heifer survival rates. Do so at your own risk. Keeping more heifers alive is like putting money in the bank. Often, I hear that selling heifers is the last step before the death of a dairy… I say, not so fast. Selling heifers, if it is part of your regular financial plan (and not a “fire sale…”), can generate some nice cash flow, which, if you sell them as fresh two year olds allows you to be taxed only at Capital Gains rates (and you can keep their heifer calves, too, adding more to the value of your herd!).

These are just the top points from Mike’s excellent presentation. However, if focus on your level of ECM, your 21-day Pregnancy Rate and your Heifer Survival Rate, your profits will not only increase, but many of your related variables will also improve.   Remember, as I previously stated in my February 28, 2017 blog, and as presented by Dan Sullivan, Founder of The Strategic Coach:   “If you measure something, you can understand it. If you understand something, you can control it. If you can control something, you can improve it.”   I hope you find these discussion points helpful. If I can assist you with your business in any way, please let me know. Be sure to watch for upcoming announcements of my new program entitled Six Hours to your Best Year Ever! available at www.success-strategies.com soon.

In Defense of the “Mean” Vendor

I recently had a very interesting conversation with a producer. After asking him how things were going, he replied, “Man, these feed companies are really getting pushy. They expect me to be current every month.” I thought to myself, “Oh really… so does Wal-Mart.” I am not making light of the fact that the dairy industry has had a tough 2015-2017, or, for that matter, that all industries have their moments when cash flow is tight. However, the vendors that he was referring to had been extending him as much credit as they possibly could these past 27 months. However, they were running into two big issues: 1.) Their own cash flow was being pinched. 2.) Their lenders were pressuring them to clean up their Accounts Receivable. We have been through an interesting evolution. 40 years ago, supposedly no dairy ever made any money… Yet, they still were able to pay for their herd, their feed & operating expenses, provide owners with a living and an eventual retirement. 20 years ago, our markets changed to a global outreach, putting additional pressure on our revenues as we attempted to compete more with the entire world. Costs increased but at a fairly reasonable pace. However, the last 10 years, particularly during 2008-2009, the global swings have been wild! Despite assurances from the Federal Reserve Board that we have only minimal levels of inflation, almost all fixed and variable costs have climbed dramatically, pushing our break-even price levels to all time highs. Often, these were even pushed above a reasonable level. Suddenly, more businesses, particularly dairies, started to fail financially or, at best, began to liquidate. As a result, some vendors, whether secured or unsecured, received far less than what was owed to them. Not only did this crimp their margins, but the legal fees and other costs associated with collections became overwhelming. Even if they collect the 18% interest they often charge on “past due” balances, does that cover the cost of their financial manager or legal fees? I doubt it. Hopefully, this will provide you with some perspective the next time you hear about a “vendor coming down on one of your neighbors.” Remember, most vendors are in this game for the long haul (and those who aren’t will sort themselves out…), but they can’t very well serve your needs if they aren’t around any more. Think about it.

Can’t, Can’t, Can’t…

During the last 18 months, I’ve heard a lot of people listing all the things they can’t do:

  • I can’t get my bank on board for the changes I want to make.
  • I can’t get production where I want it to be.
  • I can’t get my feed costs down.

I know that this period has been tough on both Cash Flow & Morale, but please allow me to offer a few suggestions:

  • Whatever the subject, whether you think you can or think you cannot, you’re correct!
  • Having said that, let’s shift our focus to what we can control.

What can we control???

  1. Our attitude. Legendary UCLA basketball coach John Wooden said it best – “Things turn out best for the people who make the best of the way things turn out.” Author Louis Mann said, “What happens to a man is less significant than what happens within him.”
  2. Our management impact. Are you surrounding yourself with the best advisors at this time? Your management team has a wealth of positive experience to offer you. They see the best and worst practices of other dairy operations. Take advantage of their availability and their knowledge.
  3. Cost controls. Have you reviewed every line item in your budget? High milk prices in years like 2014 can lead to increases in some expense areas beyond reasonable levels. Check your various costs and review your labor utilization.
  4. Develop a plan and meet with your banker. Having a plan in place is crucial! Develop a contingency plan to deal with potential pitfalls of the next 3 to 6 months. The industry is beginning to turn around and when it does, you must be prepared to capitalize on the next upturn!
  5. Business advisors George Ford and Gordon Lippitt summed it up best: “Some self-confronting questions: ‘Where do I want to be at any given time?’ ‘How am I going to get there?’ ‘What do I have to do to get myself from where I am to where I want to be?’ ‘What’s the first, small step I can take to get moving?’”

If you would like to complete a self check of your current thinking and even plan for better future thinking, just click on the following link http://success-strategies.com to reach our home page and take advantage of our new free tool “Know Your Score.” I hope you find it helpful!

Days of the Handshake Are Gone

The savings and loan debacle of the 1980’s changed forever how banks were required to document and monitor loans. 2008’s financial meltdown simply amplified this same effect.

Read more

Circumstances You Determine

Given the difficult state of the dairy industry, lenders might, in some situations, be taking longer to make their credit decisions. Is this truly a tough year? YES!!! Is it the end of the world? Hardly. Is your loan renewal taking longer than usual this year? Perhaps, but so are the renewals of many other producers.   Do you feel like your lender is being tough on you? Welcome to the new world of dairy finance. I have seen some of the most extreme lender responses over this year, some that even supersede decisions made in the 20-month downturn of 2002 to 2003 or even 2009. Perhaps, these same lenders haven’t forgotten the implications of these past downturns. However, I have observed two distinct and sometimes extreme reactions from lenders during the past year.   The best lenders have laid out specific guidelines for my clients and provided them with sufficient operating capital to keep their dairies running smoothly during this transition time. This has allowed them to continue daily operations without worrying about whether their lines of credit will be renewed and has also allowed them to maintain positive relationships with their vendors. This ability to maintain operations in an ongoing and positive manner can be crucial to the success of any business.   On the other extreme, I have seen some lenders drag out the renewal process for so long that they have actually weakened the client even further. Then, when the bank finally did complete the renewal process, the restrictions and reporting requirements were so onerous that the clients barely had enough money or time available to run their business! Additionally, these same lenders acted as if they were doing their clients a favor by completing the renewal. Allowing for a herd loan with a 65% today loan-to-value (LTV) is not exactly my idea of “thinking outside the box.” Limiting this client to a level of 62% LTV on their herd loan, particularly in a year like this, was a clear demonstration that this lender was not a long-term player in the industry. In spite of this, we still need to move forward in a positive manner.   As a dairy producer, what should you do now? How can you position yourself to survive this extended downturn in milk prices?

  1. Be certain that all of your loan covenants and reporting requirements are up to date.
  2. Maximize your overall results as much as possible. If you are not sure how to accomplish this task, call on someone who does. This is an excellent time to visit with your certified public accountant, financial adviser or another lender. Try asking the potential new bank(s) what they might be able to do for you in your current situation.
  3. Don’t lose your “vision” for the future. Define clearly what you want going forward and then maintain your focus in the future. Review your goals and set new ones regularly.
  4. Learn from life’s lessons (failures) and move forward without dwelling on them. Instead, make a list of what items you should consider changing and then discuss them with others to be certain that it makes sense. Frank McKinney, in his book, Make It Big! tells readers to, “Do your job, do it well and do it every day.” This is sound advice for each and every one of us, especially in tough financial times.
  5. Finally, be sure to enjoy the process. One of the best ways to accomplish this step is to adjust our attitude by following the advice of George Bernard Shaw, who said, “The people who get on in this world are the people who get up and look for the circumstances they want, and, if they can’t find them, make them.”

  Please join me in following his advice. You’ll be glad you did!

Playing to Win

Recently, I was listening to an old tape of mine that included an interview with former Notre Dame football coach Lou Holtz. In that interview, he was asked how he motivated his players to win so often. His reply was, “I don’t ask the players if they want to win. I ask them if they can live with losing, because if they can, that’s exactly what they’ll get because it’s so much easier to have.”   I thought to myself, “Wow! Isn’t that exactly what we are facing in the dairy industry almost every year?” In recent discussions with other industry colleagues, one of them commented that it used to seem like one out of every three years was a real financial challenge for dairy producers. However, in the other two of the three years, a producer could regain his financial position. We then recalled the impact of low milk prices in 2006, 2009 and 2015-16, along with high feed prices in 2008 and 2011-2015.   What Coach Holtz was saying is that we need to focus on winning. Considering the current and future trends in the U.S. dairy industry, including banks being tighter than ever, it is clearly time to sharpen our focus.   How does this impact you as a producer? Unless you are in the process of “playing your last game,” you will definitely want to plan on sharpening your tools. Consider visiting my website at www.success-strategies.com to review the tools available there to help you develop a bigger future.   As I’ve written previously, start to observe the trends. Are you using them to your advantage or do you find yourself fighting them? Do you have a solid strategic plan in place and are you using CPA prepared Financial Statements to regularly measure the impact of your labor efficiency, your changes in herd size, and your other cost cutting measures? Do you have a marketing plan in place for most of your milk? When milk prices are higher, as they are trending today, we should attempt to reduce our debt levels, because, as I explained above, we never know when the next downturn might be coming. Are you currently starting to do so? Will you be prepared when the next downturn arrives? Develop a plan today that allows you to get beyond just producing milk and allows you to work smarter, not just harder.   If I can help you as you think about developing a brighter future, please let me know by e-mailing me at john@success-strategies.com. Most importantly, please set aside some time to consider our industry trends. What’s next? It’s your move.  

“We have forty million reasons for failure, but not a single excuse.”

   Rudyard Kipling

 

Building a World Class Team! – Part I

At a Leadership Conference at Duke University several years ago, I enjoyed a keynote address given by Duke University’s head basketball coach Mike Krzyzewski entitled “Building a World Class Team.” His message centered on his experiences developing the USA Basketball Team that competed in the Summer Olympics. He also outlined what he felt are the primary keys to positive leadership and sound teamwork. Perhaps, you will find these helpful as you develop your internal management team and build relationships with other professionals you work with. The attributes he described include:  

  1. No Arrogance – He is dealing with a team consisting of professional NBA players, some earning up to $10 million per year. Are there some egos involved here? They have learned to put the team first and themselves second. This is no small task, but it can be accomplished in your operation, too, by helping your management team to share your vision for success and put their individual egos behind your team’s progress.
  2. Collective Responsibility – Simply stated, we win together and lose together. Is the loss of a game the responsibility of the player who missed the last second shot from 20 feet out? I don’t think so. Collectively, if we had played better throughout the entire game, maybe we would not have been under such pressure at the end. The same holds true for your business. When your milk flow is down, don’t blame the Nutritionist. Maybe we should have watched the breeding program closer to ensure better heat detection and more pregnancies, resulting in more fresh cows.
  3. Work Together to Get Better – Remember, in a great team setting, I don’t lose if you win at whatever role you play. We both win! Life is not a “zero-sum” game, as many of us have been told in the corporate world. Rather it is the summation of a series of win-win situations through which we grow. We need to work together to get better collectively.
  4. Confront Underperformers – There are so many examples in our world where we attempt to “equalize” everyone’s results, especially today with our “entitlement” society. I need not single out any sector or institution, because you already know what I’m talking about. As I said above, work together to get better & cultivate excellence.

In Part II, coming in my September 30th blog, I will continue with the final five points.