TAKING TIME TO MEASURE YOUR PROGRESS

Consider using the following questions in the financial analysis of your business. The first question, “What is our current performance?” In the area of finance, we would naturally consider measures such as profitability, cash flow and debt service coverage. Many of us study expense items when our revenue is lower, as in 2006, 2009 or 2015. I would challenge you to review these line items in the good times as well. It is easy to let costs slip upward when there is less downward pressure on milk prices and cash flows. Question number two, “Are we getting better or worse?” “…and WHY?” It is important that we ask why we are improving or regressing. If we are spending money on capital expenditures designed to improve our labor efficiency, are we actually seeing a reduction in direct labor costs? If not, will we at some point in the future? Are we projecting improved cash flows as a result of these expenditures? Monitoring monthly expenses can help you keep them closer to your annual budget. Your banker will be looking at each of the line items throughout the year. Shouldn’t you also? For assistance with this ongoing process, check out our new program (coming out soon) at www.financematters.solutions. The third question, “If your operation is broken, what needs to be fixed?” Many times we resist change because it can take us out of our “comfort zone!” We all need to stretch ourselves. In this case it is by closely examining each expense item and making those tough decisions no one enjoys, but which will assist you to take your operation to a new level of financial performance. The final question, “Are there patterns to which we can apply resources?” Are you seeing some measurable trends that can be improved upon with additional capital expenditures (CAPEX)? The best way to approach this task is to review current trends in profitability, cash flow or other measurements, and then project what you expect to occur with the implementation of your possible changes. Of course, as with all operational decisions, only hindsight provides 20-20 vision, so you have to use your best business judgment to select from all available options. Make what you feel is your best choice and give it a chance to work for you. If you complete the process of reviewing your current performance, checking whether it is getting better or worse, fixing items that seem to be broken, and using patterns or trends to determine where to best allocate your resources, these steps can pay huge dividends and substantially improve your business!!