BANKING ON RELATIONSHIPS

One of the most common problems faced by many business people today revolves around their ability to obtain the financing they need. This challenge becomes even more pronounced when we are faced with a tight lending environment. It also shows the importance of maintaining a solid relationship with your lender. Whenever someone gets turned down on a loan proposal, we have to review the facts and explore possible “whys”.

  • How do the historical numbers look? i.e. has your business been profitable in the past?
  • How reliable are the numbers in your financial reports to the bank? Are they CPA prepared?
  • What do your current cash flows look like? Have you completed some projections, and if so, do the projected trends look positive or negative? Even if they look soft in the interim, is there a projected turning point sometime in the future?
  • What are your plans for the next 12 months? In less detail, how about the next two to five years?

I’ve never seen a loan turned down without reasons. All loan officers have a dual and often difficult role to play. They are attempting to accommodate your need for loan funds, while protecting the assets (i.e. loaned money) of the bank. Most lenders are willing to provide you with their reasons for turning down a loan request. Let’s review common reasons for a loan request being denied and what to do in response.

  1. Weak financial history. Often this can be countered by a plan to implement changes. Can you suggest changes in your operation that make economic sense? “Insanity” has often been defined as “doing things the same way and expecting different results.” Make sure you are making changes to “turn the corner” and get back on the track to profitability.
  2. Lack of a clear plan. Do you have a defined plan and established goals for your dairy business?
  3. Maybe they are correct. This is a tough one, but if we cannot justify our investment in the proposed financing, perhaps we need to consider other options.

We each need to remember that a banking relationship, just like a good marriage, is a two way street. We need to always be showing improvement in our operating results, demonstrating we have a clearly defined plan with reliable historical numbers and sound cash flow projections. After you plan your work, then work your plan. Fine-tune your agenda as needed. At that point I believe lenders will be looking for you!

Redirecting Your Business Focus

Recently, I read a great article on business focus in the January 2017 issue of Inc. magazine entitled “Keep Your Head in the Clouds and Your Feet in the Mud.” While I found the title, in and of itself, interesting, I thought it would definitely be worthwhile reading this at length. It was authored by Gary Vaynerchuk, founder of Wine Library, whose book I had read several years ago. He started out by saying: “If you’re an entrepreneur who is struggling with average results, there’s a good chance you’re stuck in ‘the middle.’” Interesting, I thought, particularly with the average results we have been seeing in the dairy industry with its low milk prices during these past two years. He went on to explain: “By the middle, I mean you’re probably too focused on the minutiae, the 99 percent of the stuff you encounter every day that has nothing to do with what you want out of your business and is not part of the hard work it takes to get it.” Wow! This is true for so many of us that run our own businesses, including myself. I would like to suggest that we start to focus on the items that really matter, the reasons you are actually in business to begin with. Aside from providing for your family, what are your specific reasons? Do you want to provide consumers with the #1 beverage available? Do you want to develop the very best genetics in the marketplace? Is it your goal to successfully continue your ancestors’ dream farm? Whatever that objective is for you, this should be your primary focus today. As Vaynerchuk explains:   “The clouds are a metaphor for strategy. They’re the high end beliefs that are at the heart of everything you do, everything you want out of your business.” It’s easy to shift our focus away from these when we are in difficult times.   It should certainly not be whether the banks are going to start calling in their lines and loans since dairies have not been cash flowing with $13/cwt milk, even if you have been hearing such rumors. One of the best practices I have utilized over the past 19 years as an entrepreneur is to simply ask myself: Will this activity get me closer to by goal? This forces me to do two tasks. First, it helps me to consistently focus on my objectives for my business. Additionally, it reminds me that, in order to reach those objectives, I need to remain focused on the items that will guide me toward them. You probably know the Biblical reference that stated: “What got you out of Egypt is not necessarily what’s going to get you to the Promised Land.” It is the focus on your strategic initiatives and “Why” you want to reach them. If you know your “Why,” you will undoubtedly figure out the how of accomplishing these objectives. The “dirt” that Vaynerchuk describes refers to all the detailed items that have to be done to succeed. You know, within your expertise, the many things that you need to execute correctly. While these all need to be done by you or someone on your team, the problem lies with our inability to get above these tasks. If we are not careful, spending too much time on these activities can put you in a vulnerable position! We all need to look up occasionally and check out the macro-economic trends and what is happening in your marketplace. This is precisely why I hold regular Management Team Meetings with my Clients, to make certain that we periodically look at what is going on around us, in addition to how we are performing vs. our goals, and to check what we are truly focused on. This process should also include one other item. While having the answers can often be beneficial, remember that asking the right questions can often be even more powerful. Think about it. It’s your business!

Where are you now? Do you know where you are headed?

Let’s face it. This year and 2015 have both been tough financially! So, how are you faring these days? You know, recently I thought I was having a rough day when I completed four flights in two days and then six flights in four days… until I was sitting next to a lady who had recently experienced an “emergency landing.” Apparently, one of the jet’s engines had stopped functioning, all of which wasn’t leading to a very positive outcome…   So, just as with my bemoaning the numerous flights in one week, things are often a direct result of how we look at them. With that in mind, as part of a new program that I am presently developing entitled “6 Hours to Your Best Year Ever,” I am introducing a new self-evaluation tool entitled the “Know Your Score,” which you can use at your convenience and at no cost by using the following link:   http://knowyourscore.coach/scorecards/c36a14133f28f0d3edca51f685c161a4/surveys   As you take this evaluation tool, ask yourself two questions: 1.) What are my scores today? 2.) What do I want them to be in five years? As you find yourself struggling with the current negatives of our industry, please understand that you are not alone in these challenges. I understand how you are feeling. Every one of my Clients is feeling much the same right now. In fact, I’ve felt the same challenges almost every time I talk to one of them, but what I am finding is that if you remember that this, too, shall come to pass, it can really clear your thinking.   I recall the story about the professor who, on the first day of class, told his students that they could earn an A, B, C or F in his class. He outlined the requirements for each specific grade. Their assignment before tomorrow’s class was to simply decide which grade they wanted to receive and turn it in to him. They could move up (in grade) or out of the class, but if they stayed and skipped any of the required steps for a given grade, they would receive an F. Sounds just like real life, doesn’t it? What “grade” do you want to receive?   After you have determined where you currently are in your thinking and where you would like to go in the future, can we help you get to where you want to go? If you would like a follow-up call, please shoot me a quick e-mail at john@success-strategies.com, and we’ll schedule a 15 minute call. Know anyone else who can benefit from this tool? Please feel free to forward this to them with its link, or if you’d like, just share their e-mail with us and we will do it for you. Thanks!   My business coach Dan Sullivan, who developed the original Mindset model called the Optimum Maximizer™ said you should always talk yourself into a better future, not a worse one! Of course, that is the objective with this model. I hope you find it helpful.   “Success is not a matter of where you stand, but in what direction you are moving.” Quote on Excellence from the Successories™ Calendar

Measuring Up To Success

Recently, I was introduced to a concept by my Business Coach Dan Sullivan that I believe is very applicable to any business today. He stated:   “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.”   Wow! It sounds so simple, but let’s explore this quote more deeply. We all know that it is important to take measure of many facets of your business operations. Yet, many of us, in spite of knowing this is true, still don’t do it. I am not certain why many people resist doing this, but, frankly, it’s the best way I know to make any type of improvement. For this reason, I have spent years putting together measurements of my Clients’ business results. Please allow me to provide you with several examples:   As a follow-up to completing Annual Cash Flow Budgets for my Clients each year, I also track their Actual vs. Budget results every month. Obviously, this is the measurement part. Understanding this information comes from the analysis we do whenever an item is “highlighted” for being more than 5% over our budget. One of my Clients calls these his “Amber Alerts,” because they point out the areas we need to focus on improving or, at a minimum, grasp a better understanding of why these items are over budget. Sometimes these cost over-runs are out of our control, but 95% of the time they can be controlled. Just understanding what is going on within your business provides you with an opportunity to control it, and, clearly, if you can control an item, you can also improve it.   My Management Team Meetings with Clients also measure their results compared to six months and 12 months ago. On a dairy operation, these are items such as Milk Production per cow per day, their Pregnancy Rate, Heat Detection Rate, Percent of the herd that is pregnant and many other items. These are the measurements. We can grasp a better understanding of these simply because we measured them vs. prior periods’ results. If we understand these items, we can understand why they are getting better or worse and gain better control over our outcomes. As I said before, if we can control something, we can improve it.   I also work with Clients who have fairly labor intensive businesses. In their case, because they can automate some tasks rather quickly, we measure their cash flow results, not only vs. their budget, but also on a “per hour billed” basis. Completing these measurements helps us understand what the results are, but also gives us a grasp of the trends in our expenses per hour billed. Once we understand these items, we can take steps to better control their bottom line, allowing us to also improve their results.   I hope you find these examples 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.

Don’t Worry, Be Happy!

Remember the song entitled “Don’t Worry, Be Happy”? Humorous? Yes, you couldn’t help but smile when you heard it! Wish you could do so? Yes. Realistic? Probably Not! Steve Chandler, in his book 100 Ways to Motivate Yourself, states, “Don’t worry. Or rather, don’t just worry. Let worry change into action. When you find yourself worrying about something, [as so many in the dairy industry are today (my addition)], ask yourself the action question, ‘What can I do about this right now?’ And then do something. Anything. Any small thing.” Most of us worry about lots of things. Why? We think it will get better if we do. WRONG!!!!!! Chandler also says, “But when we worry, we don’t worry a thing to death, we worry it to life. Our worrying makes the problem grow. And most of the time, we worry it into a grotesque kind of life, a kind of Frankenstein’s monster that frightens us beyond all reason.” He suggests we take four problems – 5 minutes each – No more than 20 minutes! Not too much time to commit! I discussed the following four problems with a client recently:   * Upcoming Bank Meeting – –  How could I better prepare for Friday morning? –  What will my Loan Officer want to review/discuss?   * Deadline Environmental Report – –  What must be reported/measured? –  Did I need help? If so, from whom?   * A Growing Stack of Bills Facing Me – –  Open and sort them. –  Pay whom and by when? –  Set a day(s) to do so…   * Plans for my son at College – –  What do you want for him? –  What does he potentially want?

  • Set date to outline plans.
  • Set date to discuss this with his son, Bobby.

And all of this only took 20 minutes – WOW! *    Fear cannot coexist with Action! *    If you’re worried, take some Action Steps. *    Ask yourself, “What small steps can I take NOW?”   ** If you didn’t have a chance to use my new self-evaluation tool entitled the “Know Your Score,” which you can use at your convenience and at no cost by using the following link, here is another opportunity for you to do so (for a limited time):       http://knowyourscore.coach/scorecards/c36a14133f28f0d3edca51f685c161a4/surveys   As you take this evaluation tool, ask yourself two questions: 1.) What are my scores today? 2.) What do I want them to be in five years? I hope you find it helpful!

Oh, the Interesting Things People Say About Financing!

I’d like to share with you a story of two Clients in two different industries, who were in two very unique situations but both needed financing. One of them gave the bank all the information they requested and awaited a response, while the other Client stated that, “If they can’t get this loan done in less than 10 days, just forget them! I’m moving on!” Well, that approach is OK if you have lots a time to burn, but really, does it make sense to meet and fill out forms for 10 banks for two weeks each, racing through five months of time, only to find out that you’ve burned bridges with all of them? Wouldn’t it make more sense to meet with three or four of your top banking candidates and make certain that they can complete the type of financing you desire? I think so. In fact, I find that if we hold discussions with several banks at the same time and provide each of them with the financial information they need, we can be much more efficient in our approach to the loan process. While it still may take four weeks to get to the point of signing loan documents, we can be much more effective in completing this task, simply because each of them will likely want the same information. What will they probably need?

  • Three years of Financial Statements & Tax Returns for your business.
  • A current Personal Financial Statement for each owner of the business.
  • Cash Flow Projections for the current year, and possibly “in house” Interim Financial Statements if you are already part way through the current year when you apply.
  • A potential Loan Structure you desire, as outlined in your Cash Flow Projections.

Once you have submitted all of this information, be patient, for two reasons. First, banks are under a lot of pressure from the Fed and the OCC, as well as other regulators, to make only the most optimal loans. Doing so will require them to scrutinize every loan prospect very closely. With this in mind, work with the loan officers as best you can. Understand that they have a lot of people to report to, and often, they are not the final approver on your loan proposal. Another reason to be patient is that your deal is most likely not the only one they have pending at the same time. They get paid to produce results, so give them a chance… Actually, is this all that different from ten years ago? Not really. With all of agriculture being subjected to much higher levels of volatility, the anxiety levels of both lenders and borrowers have climbed a great deal, as have our expectations. You may be thinking – Hey, I have survived the downturns of 2003, 2006, 2009 and now 2015-16 – I must be good. You may be correct, but the same rules still apply. Is your “Burn Rate” stronger or weaker than it was 10 years ago? Work patiently with the banks, as outlined above, and I’m confident that success will come your way, and probably long before five months have passed. If I can assist you with your business financing 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.

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