Understanding Your Breakeven Levels

Do you know the break-even levels for your business today? If not, you may in trouble. Not because of today’s low milk prices, although those aren’t helping. The root cause of this trouble is that, without knowing these break-even levels, you are “flying blind.” You may currently have a cash flow challenge, but, worse yet, you cannot fix it because you won’t know if and when it has been corrected.

Please allow me to start by defining break-even levels, as I view them. They are the level at which, if all your other factors remain the same, you’ll break even on your cash flows. For example, if you are running a gymnastics class and are losing $100/month, you will need to sell four more memberships at $25/month without incurring any additional costs, or perhaps you’ll need to sell five more memberships in order to pay for the $25/month advertising that you need to run in order to generate these added sales.

Similarly, on a dairy operation that is averaging 71 lb/cow/day, but whose break-even production level is determined to be 75 lb/cow/day, you will need to increase production by four pounds per cow per day, while keeping all other revenue & expense items the same. This is a tall task, no? Well, yes it is, but do you want to win or not? There is a distinct possibility that we cannot get the 4 extra pounds of milk at zero cost. However, what if we spent $0.25/cwt more on feed and then, as a result of increasing our production levels, were able to lower our other costs/cwt (labor, insurance, etc.) enough that we were then above break-even? Perhaps there are other costs that can, indeed, be reduced, too. Please look at everything.

I had one dairy Client who had 800 cows, ran a 40% cull rate, could not expand and yet maintained 975 heifers. By simply reducing the number of heifers he was raising, his heifer costs were reduced to a more reasonable level, allowing him to then make money.

This is the entire point of completing your break-even analysis. You just don’t know unless you do the budgeting & break-even analysis with comparisons to your current actual levels. Cutting costs is not always the answer, as learned by some who tried to do so in 2009 with negative consequences. However, if your feed costs increase 3% and yield a 6% additional return, chances are good that you’ll eventually achieve break-even status.

If you would like to learn more about similar topics and the tactics our Clients have used to improve their outcomes, as well as what applications of these lessons you can make in your business, please join us for our next Success Strategies Mastermind Group series of quarterly workshops in July 2019. They are designed to teach more people the Finance & Strategy Concepts that I offer business people. Signups have begun, giving you the opportunity to learn these same concepts and meet with other producers who have overcome some of the same challenges you may be facing. Check them out at:

https://success-strategies.com/mastermind-group-for-dairy-farmers/

Getting the right information needed and then moving forward with a proactive plan is what I consider Next Level Thinking! If you need assistance with these calculations, please let me know. I welcome your thoughts and comments.

The tools to calculate your break-even levels are available to subscribers at our website www.success-strategies.com under the section entitled “Financial Techniques.” If you’d like to listen to a presentation I recently recorded on YouTube, you can do so at:

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What Happens When Banks Diddle? Why is Your Loan Taking So Long?

I know this is probably going to “ruffle some feathers,” but I believe it is a question that needs to be asked… Now, I know that all banks are being subjected to a massive increase in the number of “eyes” who are reviewing their loans, but give me a break. Just because they are being reviewed more often does not mean that it is a “bad loan…” The last time I checked, I don’t think the auditors are running the banks! They are only evaluating them.

I also want to clarify that I am not talking about loan situations where the Loan Officer is waiting on the arrival of a new financial statement. That makes a lot of sense. In fact, it is clearly logical. I’m talking about scenarios where, in spite of the difficulty of a borrower’s industry, they are still able to attain profitability. Nonetheless, their bank still keeps its finger on the “Hold” button. Why?

Often, it is explained that we need more “clarity…” Really? It looks fairly clear that these are the times when borrowers need the ongoing support of their lenders, not a bureaucrat who cannot make a decision. I spent a number of years on the line, making loan decisions. No one said it was easy, but that is why bankers get paid, isn’t it?

If they are worried, they should exit the credit. Why leave it hanging around, hoping for a financial resurrection? Give the borrower a deadline to improve or move out of the bank, i.e. find another lender. You owe it to your shareholders. If it’s workable, then move forward and give the borrower a greater chance to succeed. Here’s why.

For a borrower who is being delayed, they are caught in a conundrum. First, they don’t know if or when the loan is going to be approved, so they wait, instead of finding another alternative solution to their challenge. This hurts their results. Additionally, they get frustrated and start to lose their focus. Frankly, this can lead to poor management decisions on the part of a borrower.

You know the old saying, “When you are up to your eyeballs in alligators, it’s hard to remember that the original objective was to drain the swamp.” As a result, they start to think short term only, instead of focusing on the benefits of not just surviving, but also thriving and hitting their long term objectives. That, my friends, is no way to run a successful business.

Overall, nobody wins in these messy scenarios. Borrowers stress needlessly and tend to make poor business decisions or, worse yet, not make any decisions at all, choosing instead to operate by default. Lenders then can get strung out financially, too. Ultimately, getting the right information needed and then moving forward with a proactive plan is what I consider Next Level Thinking! I welcome your thoughts and comments.

If you would like to learn more about similar topics and the tactics our Clients have used to improve their outcomes, as well as what applications of these lessons you can make in your business, please join us for our next Success Strategies Mastermind Group series of quarterly workshops in July 2019. They are designed to teach more people the Finance & Strategy Concepts that I offer business people. Signups have begun, giving you the opportunity to learn these same concepts and meet with other producers who have overcome some of the same challenges you may be facing. Check them out at:

https://success-strategies.com/mastermind-group-for-dairy-farmers/

If you need assistance, please e-mail me at john@success-strategies.com or check out our website for many useful tools for your ongoing business evaluation at www.success-strategies.com. I’m always available for a follow-up call and wish you the best of success!

I know what you are probably thinking, after reading the title of this blog. Wow, that sounds demanding, perhaps even childish. If so, I have to say that my initial impression was very similar. I can honestly say that because it was a concept that my own business coach Dan Sullivan introduced at a workshop that I attended. Gee, I thought, we spend most of our life being told to be more modest about our specific wants. You know: just cover your basic needs, don’t stand out too much, “Be average…” Instead of being “just one more performer among many,” this concept almost sounded self-centered. But wait!

I started thinking about this more and thought, “No, this isn’t self-centered at all! What else would you want out of life?” If you cannot answer that last question, you have two choices. Either stop reading this blog or give it some very serious consideration. That statement applies if you are a businessman, a sales representative, a service provider to the industry or a stay at home Mom. Being your best will undoubtedly have a more positive impact upon our society and economy (perhaps especially for the stay at home Mom and the great citizens she can create!). You have probably noticed. Generally speaking, do things get better when we all move toward the average? No. They get better when we make big improvements, create new ideas, and build new services! Henry Ford never did a “Focus Group” to see what his customers wanted. If he had, they would have told him they wanted a faster horse.

So, what is the central theme of this “Wanting What You Want” concept? I believe it is really about deciding what you want from your business and life, and then pursuing those objectives. Once you have the goals written down, develop a plan to get there. What steps will you need to take to reach those goals? What obstacles are you facing and what are the options available to overcome them? What is a reasonable deadline for reaching your objectives? Once you have given serious consideration to these items and actually written them down, you are almost there.

What are the primary challenges that we need to overcome in this process? Allow me to provide you with several:

• 95% of us don’t actually know what we want. As a result, we often spend more time thinking about what we don’t want. So, instead of worrying about the fact that you do not want your banker asking you for more information, why not work on a plan to pay off your loans or, at least, get refinanced at a bank where you will be happier. Either way, you must decide what you want.
• Society seems to want us to be average. Remember the first time you outscored everyone in your class on an exam? What did most people say to you? “Hey, lighten up. You’re making us look bad…” These forces of average must be overcome. Why not be superior? Outstanding? The first step will be to decide what you want to accomplish and set up the necessary steps to get there!
• The greatest problem with many folks today is this. They suffer from TOM’S disease. That stands for “Terrified of Missing Something.” As a result, they will try just about anything, in an effort to get ahead. I assure you – you cannot afford this anymore. If you are currently living with the thought that you can, you are headed for big financial challenges…

Here’s the deal. We all know that business is getting tougher, so why not strive to develop a plan of action that will take you closer to your goals. Decide what you want, determine what actions you need to take to reach them, and remember that these can change as you proceed. Set some deadlines for your actions and their related goals, and then measure your results. Most of all, I think it’s perfectly acceptable to “want what you want.” Besides, you aren’t taking anything away from someone else when you seek your own goals. After all, they should have their own objectives. Think about it!