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!