“How can I get past this challenge?”

Do you ever find yourself having difficulty being optimistic? I think we all do at times. Of course, not when we are getting in excess of $20 per cwt for our milk, but how about when milk prices are far less positive, as they were from 2009-2012? You might want to save this article for those times… What is the real problem with this? Don’t you have a right to be pessimistic during those times? 

Author Steve Chandler, in his book entitled 100 Ways to Motivate Yourself, states: “Motivation comes from thought. Every act we take is preceded by a thought that inspires that act. And when we quit thinking, we lose the motivation to act. We eventually slip into pessimism, and the pessimism leads to even less thinking.” The real problem lies with our inability to snap out of this mode and thus focus on the challenge we are facing.

Chandler gives an excellent example that we all can probably relate to. A pessimist decided to clean his garage one Saturday morning. However, when he looked into the garage, he was immediately overwhelmed and cried, “’No one could clean this garage in one day!’ At that point the pessimist slams the garage door shut and goes back inside to do something else.” For a pessimist, it is either perfection or nothing.

The optimist, however, after looking at his garage, continues his thinking. “’Okay, so I can’t clean the whole garage,’ he says. ‘What could I do that would make a difference?’ He looks for awhile, and thinks things over. Finally, it occurs to him that he could break the garage down into four sections and do just one section today.” Over a period of four weeks he will get the entire task completed. Sounds like a solid plan!

Don’t we all have a neighbor for whom everything always seems to go right? Could it be his thinking process? Consider one decision that you are presently being faced with. Be sure to remind yourself that there is, indeed, an answer to your challenges. Perhaps you are concerned about finding the financing you need to expand your business. Can you break it down into sections, just like cleaning the garage? Here is an example for you.

1.)    Establish an outline of your particular business plans and what you want to do.

2.)    What do you think you will need in terms of financing for capital expenditures and/or working capital for your operational needs?

3.)    Does this project have a positive payback in your specific operation or is it just “what everyone’s doing?” Run some cash flow projections on the idea. Just as three times milking does not work at every dairy, the same may be true for the idea you are considering.

4.)    Are you prepared to go to one or more banks and present your ideas? Have you fully outlined all aspects of your plan and made certain that your financial reports are up to date? If not, talk to your accountant about getting updated accrual financial statements for your business. Lenders love to see them because it provides them with a much clearer picture of what is actually taking place in your business. You should want these, too, to make sure your costs are in line with the rest of the industry.

These four steps should serve as a guideline of how to approach your business hurdles, whatever they are. Remember, when you face a business challenge, stay optimistic so you remain open to all possibilities. The primary reason to remain optimistic, as I said earlier, is that there is an answer. You just haven’t discovered it yet. Author Steve Chandler adds the following advice:

“If you catch yourself brooding, worrying and thinking pessimistically about an issue, the first step is to recognize your thoughts as being pessimistic. Not wrong or untrue – just pessimistic. And if you are going to get the most out of your bio-computer (the brain), you must acknowledge that pessimistic thoughts are less effective… If you really want to open your life and motivate yourself to succeed, become an optimistic thinker.”

The next time you are faced with an important decision within your business, why not give this process a try?

What Would Croesus Actually Do?

Several years ago, I wrote an article entitled “What would Croesus do?” and received extensive feedback regarding that text. The story of Croesus begins with the following characteristics. First, he is a King and is surrounded by some brilliant people. Additionally, while his kingdom has occasional problems, he has unlimited funds to solve them, so, as you can imagine, Croesus and his court are always capable of finding solutions. They have no financial limitations to overcome. 

In their book Why Not? How to Use Everyday Ingenuity to Solve Problems Big and Small, authors Barry Nalebuff and Ian Ayres tell the story of Croesus and his ability to successfully overcome any problem. However, they go one step further by answering the question about what you can do to solve challenges when you do not have unlimited funds, like most of us.

Their process, while simple, is two fold. First, come up with the solution to a problem as if you had unlimited funds, and write it down. Next, since we do not have unlimited funds, think of less costly solutions to this same issue. Now, that is the challenging part, but Nalebuff and Ayres also point out that after you have followed the King Croesus approach, as if you had unlimited monetary resources, you are definitely better equipped to come up with a less expensive solution. In fact, it has been their experience that you may even discover a solution to another challenge you are facing simultaneously.

Here is an example of this happening with a prospect recently. They had a problem. Their “Supplies” cost had been going through the roof, but they couldn’t figure out why. After reviewing their numbers more closely, we discovered that they were using a new product that insured cleaner teat ends and better overall sanitation in the milk barn. This new product had, in fact, improved udder health and had lowered their Somatic Cell Count to 125,000, but they were wondering if they could afford to continue its use…

It was supposed to be a replacement for another previously used product. Yet, they had neglected to discontinue their prior product. Was the new one effective? Absolutely! Was it free? No. In fact, while it clearly worked, it was quite expensive. Fortunately, using it was less expensive than utilizing both it and the item that it was supposed to replace. Thus, as you can imagine, we had found the Supplies cost problem, because using both was like wearing a belt and suspenders. While either of these can be effective alone, you will not need both to keep your pants up.

Recall that the Why Not? authors had suggested we can often find an unexpected solution to another challenge when we use their process. In the case of the producer above, we also learned that several feed additives should have been eliminated after they started a vastly improved job of covering their silages and harvesting their crops at the most optimal time. Guess what? Some of these items, while they were expected to be discontinued, had in fact still been purchased. This is a good example of finding another solution while you are focusing on an entirely different problem.

Both problems were solved by studying their numbers very closely, and, in comparison to the budget and the goals for their operation, determining what they actually had to spend. You can use QuickBooks, Excel or some other program, but, most important, make sure you review all of your costs, closely and often. While we are in good times now, that could change. Besides, your objective should always be to maximize your bottom line profits, not make sure that you spend it all. I know most producers don’t like to pay tax, but please remember that the tax man doesn’t take it all in taxes, just a portion.

Finally, I know that everyone wants to boost their efficiencies, but don’t forget to drop the prior “solutions.” Just use your best judgment, and remember that none of us are King Croesus with unlimited funds. Study your marginal costs and returns. I think you’ll be glad you did. 

Where Did All the Cash Flow Go?

Has your operation returned to a state of positive cash flow yet? As I watch my Clients’ cash flows in 2013, I am observing that most of them have started to achieve positive cash flows in their business at this point. For the few who have not, they are getting closer to a breakeven level.

Once again, I ask you to consider if you have hit your breakeven point yet. Perhaps, more significantly, if not, what is keeping you from getting there? With feed costs dropping by 30% or more these past two months and milk prices at relatively sound levels, you should be seeing some progress. If you aren’t, take a closer look at two major cost areas.

First, make certain that your non-feed costs have not become out of line. Some key areas to look at include Supplies and Labor. For some reason, these two items can often get out of alignment whenever milk prices increase. Here is my theory: When milk prices climb, some producers begin to think that they can probably afford to get that “one extra guy” their employees have been asking for. Unfortunately, along with an extra employee comes additional Workers’ Compensation, Taxes, Benefits, and possibly Health Insurance!

On the supplies front, it always seems that when milk prices climb, the cost of these items also jumps dramatically. I am not blaming the companies selling you these supplies. It simply becomes more important than ever to watch these costs in an effort to keep them from getting out of control.

The best way to keep these items under control is to complete an annual budget and then compare your year-to-date results against the budget to see how you are actually doing. Then, as a follow-up, look closely at what is either helping or hurting your bottom line. Is it something you can change? If so, just do it!

The second item to check is your cost of servicing debt in your business. If you are spending over $1.00/cwt on Interest Expense, take a close look at why that is the case. Is your herd or feed debt too high because you have too many heifers in your herd? Are there other assets you could sell to reduce the debt load on your lines of credit or other short term loans?

Occasionally, I see people who know they have an issue with their cash flows but who seem unwilling to change anything. Don’t worry about offending your salesmen. They will be happier with slightly less of your business than having none of it because you were forced to sell out. And, remember, your bankers are watching your performance more than ever today. Why not leave them with a positive impression? Think about it.

When Should I be Worried about my Business?

I often hear Clients say that they are worried. It sometimes makes sense to express concern about items in your business and personal life. However, does it pay to literally worry? I don’t believe so. Mark Twain described worry as the interest paid on a debt you never owed…

While we should all be studying various facets of our business, I see little benefit in worrying. Will it make things better? I doubt it. Will it add any time to your life? I don’t think so. It will be more likely to accomplish just the opposite.

Will worrying add any clarity to your business thinking and acumen? I doubt it…

Napoleon Hill suggested that we should, “Kill the habit of worry, in all its forms, by reaching a general, blanket decision that nothing is worth the price of worry. With this decision will come poise, peace of mind, and calmness of thought which will bring happiness.”

A lifelong friend of mine stated that he considers all of the possible outcomes of any decision, and then, if he feels he can live with what he believes is the worst possible outcome, he moves forward without worrying further about it. Sounds like good advice!

My advice: Quit worrying, focus clearly on the decision at hand and the options available, and based upon what you and your advisors know, make your best choice. None of us gets every decision right, but I believe you will be well on your way to achieving higher levels of success as a result!

A Unique Approach to Boost Your Interest Earnings

Ever wonder how to boost your interest earnings, especially with rates that banks pay you being so low? Granted, you may earn about 0.10% on any balances left in your account. Why not earn it another way by saving some money on interest expenses? There is still a way to do this. 

 When your milk check comes twice per month, why not pay down your revolving lines of credit for a couple days, while you are deciding specifically what invoices you will be paying? While these earnings are not huge, they are far greater than anyone can earn on any funds sitting in a checking or savings account today. If your lines are at a rate of 4.25%, you can save over 40 times what the bank will pay you on any unused balances. Sounds like a good trade to me…

 When your milk check arrives, assuming you have a revolving line of credit, you simply pay down the line, especially if it comes on a Friday or before a three day weekend, and then save the loan interest until you send out checks to your vendors. Just be certain that you have the funds back in your checking account before your checks written start to clear the bank. Otherwise, the overdraft fees will wipe out any savings you have had on your line interest.

 You may also want to check with your bank to see if they have an automatic “Sweep Account.” A sweep account will do the same thing for you every banking day, ensuring that you minimize your interest expenses, while ensuring that your checks are always covered. This sweep process is done completely via a computer program, designed to save you money, just like the manual process I described above. 

That, my friends, is good for your bottom line. It is a great example of Next Level Thinking!