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.

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!