Where Does This End?

We are currently facing some real financial challenges in our country and, more specifically, in the dairy industry… It seems as if many economic events are completely out of control.

Inflation has been raging at the highest levels since the early 1980’s, and many suppliers are using this as an excuse to raise prices dramatically, an action they have been unable to do for many years. As a result, it costs $500 just for someone to show up and evaluate what the problem is with your piece of equipment, let alone provide you with a solution.

Will these costs ever go down? This is not likely, as evidenced by the last bout of inflation in the early 1980’s. All of this calamity has been compounded by the Federal Reserve Board raising interest rates extensively the past 24 months, in an effort to reduce the inflationary impact. Since they were relatively “late to the game,” their impact has been one of potential over-correction and has hurt all borrowers. This includes many businesses.

What can you do? If you are running a dairy operation today, you must prepare a Budget and monitor it relentlessly. If you aren’t doing this regularly, you could fall behind.

What if I prepared this budget for you? Would that help? Our Success Strategies Advantage™ software is designed to take the pain out of this process. I would encourage you to look at it at www.success-strategies.com. When you get to the website, just look for the milk can. The program will be right there for you to explore. What can it do for you?

You can run various “What If” scenarios within it in order to figure out what various repayment schemes will work for you (15-, 20- or 25-year amortization periods). For each scenario, it also will provide you with the following items:

  • A Year-to-Date (YTD) Cash Flow Comparison of your operation compared to a budget that is based upon typical numbers for your region of the country.
  • It will show you where you may be over or under budget.
  • It will provide you with Break-Even Levels for Milk Price/cwt, Feed Expense & Production per cow per day, all useful information for reaching higher levels of profitability, as well as setting your price level coverage through the Dairy Revenue Protection (DRP) and Dairy Margin Coverage (DMC) programs.

It will equip you to better understand where you might be over budget and help you to talk with your Team (e.g., Nutritionist, Veterinarian, Financial Consultant & Others) about how to refine your numbers. Check it out at www.success-strategies.com.

And wait. I believe the Milk Futures were up again today. There’s hope!

Let’s take your business to the Next Level!

What If Stuff Happens?

There is a process that I like to complete each year with my Clients, usually in the early months of the year. I call it the “Goals & Disaster Agenda” process.

The Goal setting part of the process is fairly self-explanatory. Most of us are familiar with that process. If not, please look back at my prior blog. As entrepreneur and author Grant Cardone stated in his book The 10X Rule, “I suggest that you become obsessed about the things you want; otherwise, you are going to spend a lifetime being obsessed with making up excuses as to why you didn’t get the life you wanted.”  His statement is quite clear.

However, the development of a “Disaster Agenda” is perhaps a new concept for you. In this, we list the three worst things that could happen to our business in the next 12 months. Just in case you think this is overly zealous, consider some possibilities: Your bank gets acquired and the new management team doesn’t want to finance you any longer. You lose a key employee to a competitor. Inflation increases and, hence, interest rates go higher. These are all genuine possibilities.

The key is not to “dwell” on these concerns, but rather to consider what may occur. More significantly, give some thought to what you would do in response. The best reason for doing this is, of course, if it actually happens, you will be better prepared. Likewise, if something similar takes place, you have already given consideration to your potential action steps.

As a result, you will definitely be better prepared and less likely to get caught off guard. In the infamous words of Yoda in the movie Star Wars: The Empire Strikes Back:

“Named must your fear be before banish you can.”

I hope you find this process helpful, as you plan for greater success this year!

Please check out the Success Strategies Advantage™ software today at www.success-strategies.com today.

Let’s take your business to the Next Level!

Have You Built Your Gameplan Yet?

Wow! It’s the start of a new year, and we all get to start with a blank slate. Effectively, the score is 0-0. Regardless of what last year brought, the most important question is “What will you do this year?”

Some people call this Goal Setting. I prefer to call it “Future Setting.” My reasoning behind this is that your entire future can be built upon the foundational steps that you take now!

At the risk of sounding redundant, there are some crucial steps to follow:

First, decide what you want to accomplish. While this may seem obvious to you, many people are unable to clearly define what they do want. Oh, they can tell you what they don’t want out of life. However, stating exactly what they do want can be more challenging.

So, step #1 is to define your objective and define it clearly in your mind & on paper.

Next, it is only natural that our minds will present all the obstacles to this goal. That’s okay for two reasons. To begin, you must consider whether or not this task is actually achievable. This is a good “check point” for us to consider.

Beyond that, however, it leads us to consider what steps we need to take in order to overcome these challenges. Can we complete these tasks? Just as significantly, who will lead the process and by when will the various tasks be done?

This is crucial, because we can otherwise end up like the four characters named Everybody, Anybody, Somebody and Nobody. After their committee meeting, Everybody thought the task should be completed, Anybody could have done it, Somebody certainly should have, but in the end, Nobody really followed through.

To avoid this challenge, define the task clearly, consider the challenges you may face, and what steps you need to take. Then, take action, measure your results and fine tune your plan as you move forward.

Remember, getting results requires making a plan, outlining the necessary steps and then taking action. However, as St. Jean Baptiste stated:

“On this path, it is only the first step that counts.”

What’s your first step?

Where Do We Go from Here?

If you are running a dairy operation this year, your Cash Flows are probably suffering. Most dairies are struggling with cash flow. If you are not, be thankful. You are truly living a charmed life right now.

As we look at this year’s cash flow challenges, I believe it is worth repeating that if you measure something, you can understand it better. If you understand it, you can control it. And, finally, if you can control it, you can improve it. The same is true for cash flow.

After measuring Cash Flow Results for my clients for almost 18 years, we have noted that all costs are higher, but their Revenues are also higher, providing them with almost identical Operating Margin per cwt. How could this have happened?

I believe the most obvious reason is that they have studied the consistently higher costs of operations, and then made a concerted effort to diversify and create additional sources of business revenue. Have I piqued your interest yet?

I hope so, because if you run a dairy of any size, you can improve your cash flow results, even in a year like this, where inflation has had a horrendous impact on costs and feed costs are elevated.

I have recently introduced a system to allow you to measure your dairy operation’s cash flow results. I call it the Success Strategies AdvantageTM, and it is designed to create a budget for your dairy operation, using numbers for your region of the country.

It will also measure your actual results against this budget and illustrate where you should focus to make additional improvements, i.e. the areas where you are “over budget.” It will also provide you with crucial Break-Even levels for production per cow per day, feed costs per cow per day, milk price per cwt, and feed costs per cwt. These items can be crucial in setting your Price Levels in the Dairy Revenue Protection or Dairy Margin Coverage programs. I want to help you improve the Net Cash Flow of your operation.

Please check out the Success Strategies Advantage™ software today at www.success-strategies.com today.

Let’s take your business to the Next Level!

Was This the Perfect Storm?

Let’s consider the possibilities. If you are a dairy producer or almond grower (and they are not the only ones facing greater financial pressures…), you have been faced with lower prices this year. At the same time, your costs of operation have grown substantially, particularly in the areas of Labor, Fuel, Fertilizer, Feed and most other operating expenses.

Did I mention the higher cost of interest? In its efforts to stave off inflation, most of which was created by political geniuses spending money like a drunken sailor these past several years, the Federal Reserve Board has raised interest rates 5.50%, creating a lot of pressure on producers with any debt. What can we do?

One option is to worry, but I’ve never seen a case where that really helped. Mark Twain described worry as “paying interest on a debt you never owed…”

Another potential approach is to just complain, but no one really wants to hear that. As former President Teddy Roosevelt suggested, “Complaining about a problem without providing a solution is called whining.” What else is available to us?

Why not “Take Action?” Be cognizant of the previously mentioned challenges and then take steps to offset them.

Decide which variable you want to tackle first. Define the outcome you want as clearly as possible. Set a date for its achievement.

Recognize that there will, indeed, be obstacles for you to overcome. Yes, there are always plenty of them. Next, based upon what you currently know (and we never have complete information), decide what steps you can take. Discuss it with your Team and determine who will lead the project & its required steps. Finally, set your Action Plan, based upon the outcome you want and move forward.

Here’s a recent case I experienced with a client. He needed additional funds to buy more cows & fill a new free stall barn. Even though his Loan to Value % (LTV), after borrowing for the new cows, would only be 60% or less, his bank did not want to provide the necessary funds. Our solution? He offered an additional 20-acre parcel as collateral, and they provided him with a 20-year Real Estate Loan. Now, the LTV % on the cows was around 40% (which provided us with future borrowing capacity, if needed). The bank was happy because of the lower LTV % on the herd loan, and they had more collateral. The Client was pleased because he could add the needed cows, and his Cash Flow was improved due to the extra milk sales & a 20-year amortization on the RE loan vs. 7 years on a cow loan. Problem solved.

If you run a dairy of any size, I have recently introduced a system to allow you to measure your dairy operation’s cash flow results. I call it the Success Strategies AdvantageTM, and it is designed to create a budget for your dairy operation, using numbers for your region of the country, measure your actual results against this, and provide you with crucial Break-Even numbers. Check it out at www.success-strategies.com today.

Let’s take your business to the Next Level!

Do You Know Who I Am?

No, I am not Darth Vader, but I really believe this is a good question for each of us to ask ourselves. I recently listened to a speech by Matthew McConaughey, also known as the speech that broke the internet, where he explained that knowing who we are begins with knowing who we are not.

If you haven’t heard that speech, I highly recommend you listen to it. I find it very motivational. However, what does he mean? Please allow me to provide you with a couple examples.

I had a Client several years ago who sold his dairy operation. He had children, but none were interested in running the dairy. One was an outstanding Doctor, and the other child was a very successful Accountant. He was the third generation on the operation and had done very well. Unfortunately, he felt ashamed because he had no children to take over for him. Following extensive discussions, I reminded him of how well he had done, how successful his two sons were, and how he had continued his family’s legacy for a third generation, at a time when dairying was no easy task. In essence, to convince him that he was, indeed, a success story, he needed to recognize what he was not – someone who would live forever – because no one can do that.

I had another Client whose banker convinced him that he should diversify his operations. He was a lifelong dairyman, but he became convinced that he should diversify into almonds, too. On the surface, it sounded good. Almonds were bringing $3/pound. What could possibly go wrong?

Well, over the next five years, development costs soared from $6,000/acre to $12,000/acre. Operating costs skyrocketed and, magically, the $3/pound price dropped to $1.80. Oh, and did I mention that the Federal Reserve Board ratcheted interest rates up by over 5%? His stress levels jumped dramatically. He had done a great job of diversifying, but he was simply tired of the worry associated with the higher debt levels and soft returns.

Effectively, he began to realize identifying whom he was began with recognizing who he was not. He was not one to deal with the stress associated with higher debt levels and lower margins. He divested part of the almond property and got himself back on track.

What items do you need to consider as you recognize who you are by first identifying whom you are not? I wish you well with this crucial process.

If you run a dairy of any size, I have recently introduced a system to allow you to measure your dairy operation’s cash flow results. I call it the Success Strategies AdvantageTM, and it is designed to create a budget for your dairy operation, using numbers for your region of the country, measure your actual results against this, and provide you with crucial Break-Even numbers. Check it out at www.success-strategies.com today.

Let’s take your business to the Next Level!

Is This Sustainable?

This is likely a question many folks in the dairy industry are asking these days. In essence, how long can we make this work? Considering the lower milk prices, high feed prices these past 18 months, rising interest rates and our ridiculous rate of inflation, it really is a great question to ask. In fact, it’s an excellent question to be asked on every major decision.

Honestly, when I heard about sustainability in the past, my mind was immediately directed toward the environment and related issues. For example, if I heard about someone discharging material into a waterway, I knew that was not at all sustainable for others downstream.

However, it’s so much more today. If we add another 400-cow free stall barn at a cost of $700,000, that represents $1,750/cow of additional debt. Not a big deal. However, if I also need to go buy the 400 cows at $2,250 each, then we are adding $4,000 per cow of debt. That level can quickly become tenuous. Is that sustainable? Probably not, unless your pre-expansion operation was extremely low on debt.

What’s the solution? You just need to build a sound plan. Can you buy heifers ahead of time and feed them until they enter the milking herd? Can you build your herd numbers internally, using sexed semen on your existing herd? All of these decisions need to be considered several years ahead of the free stall construction.

We really need a plan on everything we do. You can start today by setting your objectives, determining your overall project cost, researching if you can finance it, and also figure out, as in our example above, how you can fill the barn with the 400 additional cows. Ultimately, however, you will need to project if it will cash flow.

To assist you with your financial analysis, I have recently introduced a system to allow you to measure your dairy operation’s cash flow results. I call it the Success Strategies AdvantageTM. It is designed to create a budget for your dairy operation, using numbers for your region of the country. You can run various “What If” scenarios within it in order to figure out what various repayment schemes will work for you (15-, 20- or 25-year amortization periods). For each scenario, it also will provide you with the following items:

  • A Year-to-Date (YTD) Cash Flow Comparison of your operation compared to a budget that is based upon typical numbers for your region of the country.
  • It will show you where you may be over or under budget.
  • It will provide you with Break-Even Levels for Milk Price/cwt, Feed Expense & Production per cow per day, all useful information for reaching higher levels of profitability, as well as setting your price level coverage through the Dairy Revenue Protection (DRP) and Dairy Margin Coverage (DMC) programs.
  • It will also equip you to better understand where you might be over budget and help you to talk with your Team (e.g., Nutritionist, Veterinarian, Financial Consultant & Others) about how to refine your numbers.

Check it out on our Home Page at www.success-strategies.com. Use it to build a sustainable plan and to streamline your operations. As I always say, “If you measure something, you can understand it. If you understand it, you will be better positioned to control it, and if you can control it, you can definitely improve it.

Let’s take your business to the Next Level!

Who Benefits from Delays?

It has been interesting to observe recent delays on loan approvals with several of my Clients. Frustrating, yet interesting, since the delays seem to occur for no real good reason.

I understand that all parties, particularly the bank, need to have sufficient, current information to make a good loan decision, but once they have it, why does the approval process take 3-4 weeks? No one’s analysis should take that much time…

Does the borrower benefit from this extended approval process? Not likely, especially when they have vendors who are dealing with uncertainty. This uncertainty will probably not lead to any cost savings. Similarly, it can jeopardize a borrower’s operation by generating doubt about their future.

What if interest rates go up in the interim period, as they have been for the last 18 months? It ends up costing the borrower even more.

At the same time, does the bank benefit if the rates increase? Probably not, because their “cost of funds” will also increase, leaving them with a similar margin. Additionally, whenever a borrower’s operation is negatively impacted, the risk level also increases for the lender.

Finally, if vendors decide to charge higher prices for their products, as we have seen with inflation’s impact these past two years, an operator can be hurt even more on the margin front. The air of uncertainty that is created is never beneficial for anyone. As Winston Churchill stated, “The ultimate sum of the maybe’s is always no.”

So, what are we waiting for? Let’s move forward and make a reasonably sound decision, if you have the information you need, whether it’s a Yes or a No.  Loan decisions are not like fine wines. They don’t get better with age. Instead, let’s follow the sage advice of Churchill who also said, “Let our advance worrying become advance thinking and planning.” Let’s move forward, for we have no time to waste.

To assist you with your own financial analysis, I have recently introduced a system to allow you to measure your dairy operation’s cash flow results. I call it the Success Strategies AdvantageTM.  It is designed to create a budget for your dairy operation, using numbers for your region of the country. After you input about two dozen “Actual” numbers from your QuickBooks or other accounting system, it will provide you with the following items:

  • A Year-to-Date (YTD) Cash Flow Comparison of your operation compared to a budget that is based upon typical numbers for your region of the country.
  • It will show you where you may be over or under budget.
  • It will provide you with Break-Even Levels for Milk Price/cwt, Feed Expense & Production per cow per day, all useful information for reaching higher levels of profitability, as well as setting your price level coverage through the Dairy Revenue Protection (DRP) and Dairy Margin Coverage (DMC) programs.
  • It will also equip you to better understand where you might be over budget and help you to talk with your Team (e.g., Nutritionist, Veterinarian, Financial Consultant & Others) about how to refine your numbers.

Finally, it will give you solid information to share with your banker, showing how you are currently doing and guiding you about future changes or investments that will help you streamline operations.

Let’s take your business to the Next Level!

What Makes You Think You Can?

It was a question that caught me off guard… Much as I wanted to respond with a “rapid fire” answer, it caught me by surprise. However, when I thought more about it later that same day, I concluded that it was a great question.

At the risk of catching you off guard or raising your blood pressure, what makes you think you can succeed? Henry Ford stated, “If you think you can or think you can’t, you are correct!” I have found that to be so true during the past 25 years of consulting.

I have been reading an excellent book co-authored by Dan Sullivan of The Strategic Coach and Dr. Benjamin Hardy entitled 10X Is Easier Than 2X. It discusses the process and benefits of growing your business 10X and why it is easier than growing 2X. The primary reason for this is that there are probably 10-12 different ways to grow it 2X. However, there are very few ways to grow it 10X, so you need to maintain total focus. One of the primary forces for achieving this is that you MUST eliminate any tasks that take you away from your primary goal of growing 10X.

It doesn’t necessarily mean that the task(s) do not get completed. It just means that it may need to be done by someone else. In other words, you may need to delegate the task to someone else on your Team. The example they used to explain this was Michelangelo’s creation of a 17-foot Hercules statue early in his career from a large piece of marble. The way he completed this task was by extensively studying the human body and then “chipping away” at all the unnecessary marble.

In your case, it might mean that you need to seek another “Who” to complete the task. I often hear business owners state, “I hate doing this task, so who else would ever want to do it? How could I ask them to do it?” The reality is that someone else on your Team might enjoy it and take great pride in making this happen. This might even align with their “Unique Ability.” Delegating this task will allow you to focus on more important items to help you grow your operation.

As I mentioned in my last blog, I am introducing a system to allow you to measure your dairy operation’s cash flow results. I call it the Success Strategies AdvantageTM.  It is designed to create a budget for your dairy operation, using numbers for your region of the country. After you input some “Actual” numbers from your QuickBooks or other accounting system, it will provide you with the following items:

  • A Year-to-Date (YTD) Cash Flow Comparison of your operation compared to a budget that is based upon typical numbers for your region of the country.
  • It will show you where you may be over or under budget.
  • It will provide you with Break-Even Levels for Milk Price/cwt, Feed Expense & Production per cow per day, all useful information for reaching higher levels of profitability, as well as setting your price level coverage through the Dairy Revenue Protection (DRP) and Dairy Margin Coverage (DMC) programs.
  • It will also equip you to better understand where you might be over budget and help you to talk with your Team (e.g., Nutritionist, Veterinarian, Financial Consultant & Others) about how to refine your numbers

Finally, it will give you solid information to share with your banker, showing how you are currently doing and guiding you about future changes or investments that will help you streamline operations. You can check it out on our home page at www.success-strategies.com.

I believe you will find it beneficial, because as Robert Noyce, co-founder of Intel stated, “Knowledge is power. Knowledge shared is power multiplied.”

Let’s take your business to the Next Level!

Where Do You Get Your Confidence?

I thought it was a stupid question. However, it did come directly from a finance professional who was a serious worrier, and with him, “the sky was always falling.”

My response was that my confidence came from completing 150-200 Cash Flow Analyses per year for the last 20+ years. In other words, this “wasn’t my first rodeo.” One item that added to my confidence was this Client’s long-term history and their solid Cash Flow performance.

If you complete this type of analysis regularly, it will undoubtedly build your confidence. Whether your Cash Flow results look positive or negative, you will gain a much better grasp of your numbers. The largest benefit of this entire process is that if you measure the Cash Flow of your operation, you will understand it better. If you understand it, you can start to gain control over your Revenue & Expenses. If you can control these items better, guess what? You can improve them, and that is the ultimate benefit of completing this process.

Ray Kroc of the McDonald’s Corporation said, “I didn’t invent the hamburger. I just took it more seriously than anyone else.” Similarly, I didn’t invent the process of Cash Flow Analysis, but I have definitely taken it more seriously than most people! In fact, now I’ve created a system for you to complete your own Cash Flow Analysis. I call it the Success Strategies AdvantageTM . With the input of about 20 numbers related to your loans and feed inventory, it will create a budget, using numbers for your region of the country. Then, after you input about two dozen “Actual” numbers from your QuickBooks or other accounting system, it will provide you with the following items:

  • A Year-to-Date (YTD) Cash Flow Comparison of your operation compared to a budget that is based upon typical numbers for your region of the country.
  • It will show you where you may be over or under budget.
  • It will provide you with Break-Even Levels for Milk Price/cwt, Feed Expense & Production per cow per day, all useful information for reaching higher levels of profitability, as well as setting your price level coverage through the Dairy Revenue Protection (DRP) and Dairy Margin Coverage (DMC) programs.
  • It will also equip you to better understand where you might be over budget and help you to talk with your Team (e.g., Nutritionist, Veterinarian, Financial Consultant & Others) about how to refine your numbers
  • Finally, it will give you solid information to share with your banker, showing how you are currently doing and guiding you about future changes or investments that will help you streamline operations.

I recommend you look at it by visiting www.success-strategies.com to see if it will assist you to be more profitable.