Tag Archive for: Finances

Yes, But Does It Fit the “Value Equation?”

My good friend Tim had one question whenever we went wine tasting with our wives: “Does it fit the value equation?” Essentially, was a Cabernet Sauvignon that we were tasting really worth $75-100 per bottle, or could we receive nearly as much satisfaction out of a $35 bottle? It was a sliding scale for us, but it provided us with a better understanding of what we thought about a particular wine. It also allowed us to share our thoughts with each other on wines that we tasted, without hurting the winemaker’s feelings.

Recently, I started thinking about how this fits many industry expenses, too, and Repairs & Maintenance came to mind for me. It is incredible how much it costs to fix any equipment today. May I suggest that you consider the “Value Equation” when you are looking at potential repairs?

I recently had a conversation with a Client who told me he was looking at a possible $90,000 engine replacement and was quite proud that he had run this tractor for 10 years. While I am not advocating taking on more debt, a comparable new tractor would cost him about $300,000. With the zero-interest option offered, he could pay for it over five years at $5,000 per month. Consider the value equation here. For $90,000, he could replace the engine on a tractor that had thousands of hours on it. It could have any number of other items that would break down over the next 18 months, while he was amortizing the $90,000 repair at $5,000/month.

While every decision like this should always be completed by comparing all the options, using the “Value Equation” here led me to think that spending $90,000 on an old tractor was insane, especially considering the potential for added breakdowns. I will share with you that he traded in the old unit and received $60,000 for it, offsetting one year’s monthly payments. He has been well-served with this decision. When you are facing similar decisions, consider the impact of considering the “Value Equation,” and if I can assist you, please let me know.

“There ought to be ways of reforming a business, other than by merely putting more money into it.”

Winston Churchill

Let’s take your business to the Next Level!

What If You Could?

Recently, I was thinking about a Client with whom I have worked for several years and, as I reviewed their financial results, I was thankful for the positive progress they had made.

When I first met with them, they were quite disappointed that their results were not very solid. In fact, their banker had already put them on notice that they were close to being shipped off to the bank’s infamous “Workout Group.” That is a department you definitely don’t want to end up in. While some may think that it’s a place where you work out your financial challenges, I assure you that it typically is a department where the participants “work your loans out of the bank,” and it is usually high pressure.

Regardless, this Client was not very profitable, and, due to their losses, they were approaching a level of debt leverage that would make them unable to acquire additional financing…” Thus, I asked them the following question: “What if I could guide you to become more profitable and lower your debt/cow? Would you be interested?”

Their first thought caught me a little off guard. They asked if my assistance would be free. After assuring them that I was not with the Red Cross, we started serious discussions about how we could achieve these goals. My first task was to establish what they specifically wanted to accomplish and then, after evaluating what their current position was, start building a plan to move them forward.

Part of the process included a restructuring of their debt load. Of their total debt, far too much was on short term loans, and way too little was against their real estate, which was quite highly valued. Following the restructure, we got them involved in positive budgeting. After developing their budget, we tracked their actual results against it every month. As I have said before, if you measure it, you will better understand it. If you understand it, you can control it, and, of course, if you can control it, you can improve it. This is true with any item, including Cash Flow.

Once we had this process moving forward, we initiated a program with the help of their Nutritionist to boost their milk produced per cow. With the optimal nutrition in place, they started milking fresh cows 4X/day, at the beginning & end of each milking shift. With more cwts of milk produced, we lowered their cost/cwt, always a good thing to do.

Finally, I convinced them that with their higher production and improved herd health, they might want to expand. Making more total cwts, just as with their higher milk per cow, helped them to spread fixed costs out very nicely. Incidentally, the milkers still got their shift done in the same amount of time, even with the 150 added cows.

Voila! Just like magic, all these changes assisted this Client to succeed at a higher level. So, if you are having some challenges in your business, consider “What If I Could…?” I would be happy to assist you with the process!

“Let our advance worrying become advance thinking and planning.”

Winston Churchill

Let’s take your business to the Next Level!

What Do We Do Now?

In my last blog, I discussed being willing to pay the price for success and what it will take if you want to consistently move to higher levels of achievement.

At the start of each of my Management Team & Finance Team Meetings, I like to begin by asking the following question: “What project or challenge is on the horizon for your operation this month?”

I recall an interesting meeting with a Client who told me he was behind with his feed company, the feed company was pressuring him to get caught up, and he needed to decide what to do.

Of course, he had two obvious options. He could panic or he could simply hide out, but neither of them seemed like particularly good choices. However, I suggested to them that they had two other positive options available to them.

  • They had a low fixed interest rate on their real estate loan, and it matured in two years. Given their low Loan to Value on that real estate loan, why not put a note payable behind the existing loan? It could mature in two years, at which time they would refinance the real estate loan anyway, either with their current lender or someone else. They could even keep the added loan payment small by amortizing it over 20 years and having it mature at the same time as the existing real estate loan.
  • The second option that they had revolved around the 10% “excess” heifers they were carrying. By selling these extra animals, they could generate $300-400,000 of cash and lower their feed expenses by raising less heifers. Most important, they would still have sufficient replacements to maintain their herd size.

The significance of this discussion lies with the fact that, while they had a challenge to overcome, they met it head on, and we identified options we could use to reach a greater level of success.

Option #1 was possible because we had been pushing the Loan to Value downward by making the regular monthly payments and, whenever possible, adding assets to the real estate that boosted its value. This provided us with the opportunity to acquire the second loan we needed.

Option #2 was available to us due to having an excellent breeding program and then always focusing on the question: “Based upon our financials, what challenge or project do we need to focus on this month?”

What is your approach in situations like this? Please let me know if I can help you. You can reach me at john@success-strategies.com, and consider the following advice:

“There ought to be ways of reforming a business, other than by merely putting more money into it.”

Winston Churchill

Let’s take your business to the Next Level!

Are You Being Reasonable?

During my career, I have often been described as “unreasonable” by some Bosses, numerous Bankers, and some of the so called “Industry Experts.” While they might not agree with my approach, it has really served my Clients well, allowing them to try innovative approaches & reach new goals.

As George Bernard Shaw stated:

“The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore, all progress depends on the unreasonable man.”

I could not agree more. In fact, “trying times” require trying novel approaches. Please remember that today’s greatest inventions were yesterday’s crazy ideas. Some examples include the cell phone, the internet, artificial intelligence & numerous other items.

In order to maximize your results, what changes do you need to consider? I know that there are likely some items or changes you’ve been thinking about making in your business. This may be the most optimal time to implement them. To reduce costs or boost revenues more, what changes do you need to consider today?

These may not even be directly involving you. Here is a procedure I learned from Dan Sullivan of the Strategic Coach organization. “What do you enjoy most? Least? Is there someone in your organization who might thrive with this task that you most dread?

Likewise, can you add equipment, software, or Ai to achieve some tasks? Begin your thinking by following my recently trademarked process that I have used for 25 years. This “SAVE™” process stands for Simplify, Analyze, Visualize & Execute. It has worked extremely well to maintain our focus on what matters most.

In fact, during the past 10 years, our Clients have boosted their Revenues by 32% while limiting their cost increases to 17%, leaving them with considerably improved bottom lines. Additionally, in 27 years, we have not lost any Clients, except to retirement and death (unfortunately).

If you’d like to explore this SAVE™ process for your business, please contact me at john@success-strategies.com and remember:

“Let our advance worrying become advance thinking and planning.”

Winston Churchill

Let’s take your business to the Next Level!

Help is on the Way!

Two months ago, as I was traveling to World Dairy Expo in Wisconsin, I headed east on I-80 and noticed a semi-truck & trailer coming across the median toward our vehicle. Holy smokes! Fortunately, we were protected by the wire cables that separated the two sides of this interstate highway.

I called 911 right away to give the operator the mile marker where this accident had happened. After thanking me for calling it in, she exclaimed that “Help is on the way…”

Given the current milk pricing in the dairy industry, as well as the additional deductions being assessed by some cooperatives to shore up their Balance Sheets, many producers are likely hoping for the same thing… that help is truly on the way! Prices have been slammed to levels we haven’t seen for years.

What to do?

1.)   No, do not “put your head in the sand.” Survival will require your full attention.

2.)   Instead, realize that feed costs are at a very nice low point, keeping overall costs down. Additionally, your cull cows for beef and the calves you are selling are at lofty price levels.

3.)   However, even if these two items stay at their current levels, how long can you manage the upcoming low milk prices? Knowing your Break-Even levels will help.

4.)   Additionally, while our primary focus has been on milk prices, remember that there are a lot of other variables to consider.

5.)   What else can you adjust? Are you maximizing your milk production levels? Are there some costs that you can reduce? While we never want to cut costs to the point where it would hurt cow performance, is it time to look at multiple sources of commodities, i.e., initiate some price competition?

6.)   Is your labor force being fully optimized? Can we increase their productivity? When did you last bid out your insurance? How about Worker’s Comp and Supplies? Today, your very survival may depend on these reductions.

This is a time for action. Don’t delay. What’s your first step?

“The world has the habit of making room for the man whose words and actions show that he knows where is going.”                      Napoleon Hill

Let’s take your business to the Next Level!

Do You Measure Up?

Not long ago, I had a meeting with one of my Clients and his Banker. We were feeling quite good about our YTD financial numbers, but we also wanted to touch base with her about some upcoming projects that we were starting to outline for future expansion.

Now, I went into this session thinking that we had, thus far, had a really good year. However, we were quickly reminded that this Client was still not in the bank’s top 10% in terms of profitability. After recovering from the shock of her comments, I reminded her that 90% of the bank’s customers were not in their top 10% for profitability… It was a mathematical fact.

However, I felt that it was better not to “win the battle & lose the war” by delving more deeply into this point. Thus, I shared a comparison of how far this Client had come. When we started with them five years ago, they had experienced several years of large losses, and they were now well on their way to a third consecutive year of solid profits. The best part of this discussion was that I had the financial analysis to prove it.

If you had been put on the spot like we were, could you have countered the Banker’s anguish with similar analysis? With the tight margins that have historically plagued the dairy industry, I suggest that you develop a system to track these same numbers.

Allow me to share three reasons to do this and obtain a firm grasp of your Cash Flows. First, why would anyone want to run a business and not know how they were doing financially? It is the “scoreboard” for your operation. To keep moving forward successfully, you must know how your operation is faring. It should be a solid source of motivation for you to make the necessary adjustments and continue getting better.

Second, it is good to be prepared if and when you are ever confronted by comments like the one we received at this bank meeting. I can hardly describe the joy I received in cutting through the misinformation and setting the record straight, based upon their true results… Having this information can also help if you ever need to find new financing.

Finally, think about the next generation of your operation. This is a challenging industry, and if we want the next generation of leaders to participate and make it even better, they will require a solid understanding of what they are getting involved in, because there are so many other opportunities available to them. Let’s help them as they seek to lead your operation forward to even higher levels. Remember, their success might even represent your retirement funding as they take the lead.

Financial analysis is one of the key areas that we focus on at Success Strategies, Inc. If I can assist you with this process, please let me know.

“The future belongs to those who see possibilities before they become obvious.”

John Sculley, Former Apple & Pepsi CEO

Let’s take your business to the Next Level!

What Are My Options?

In uncertain times, having options can be very beneficial, but what are they actually? Well, options come in many forms. You can buy them to set a floor under the price of a stock you are buying or selling. You can also use them to put a floor under the price of farm commodities such as milk, soybeans, corn, or wheat. Essentially, they provide you with insurance against a fallout in the prices you receive.

At the risk of sounding repetitive, they are a tool that provides you with genuine “options.” You effectively have some real choices. You can choose, for example, to sell at the price set by the option if prices have fallen below that level. If the market price is higher than the floor set in your option, you simply take the higher market price and let the option expire unused.

This is probably an oversimplification of the process, but it will give you an idea of how they work in the agricultural markets. They work just like insurance on your house. You only exercise the option if you have a “fire,” so to speak.

One of the biggest complaints I often hear about options, especially in the dairy markets, is that the options are too expensive. Really? If you honestly believe that, talk to a producer without a “floor” under his milk prices who just received $15/cwt for his milk. It’s not a free ride, but it provides you with some comfort that you are not going to get slammed with huge losses because of the prices received. It certainly beats being at a price that is $4/cwt below your break-even level…

Another objection is that if you set these up and don’t exercise the options, you have “simply wasted your premiums.” Well, well. Isn’t that interesting? Since they are another form of insurance (against price fallouts), I have one question for you. If you buy house insurance (& I hope you do) and then your house doesn’t burn down, do you call your agent up and complain that you really didn’t need the insurance? Of course not.

Likewise, with options, the only reason they will go unused is if you get higher market prices. So, your profits should be fine. Why complain about the cost of that “insurance” you put in place on your selling prices. The key here is to consistently use options to protect yourself against price volatility. Then, you won’t be saying, “Oh, if only I had…”

What action have you been putting off in this area? If I can assist you with this, please let me know.

Let’s take your business to the Next Level!

Were They Planning to Fail?

Recently, I visited a business prospect who suggested that, frankly, he did not know how they arrived in the challenging situation they were currently facing. After looking at their situation, I made two quick suggestions that may yield an additional $100,000 of profit.

Their situation reminded me of the cartoon with the two cowboys leaning on a fence and a starving cow standing next to them. They said, “Gee, just don’t know what happened, but she just suddenly took a turn for the worse…” The reality is the cow had been starving for weeks. They just hadn’t been paying attention…

This is all too common in business today, and the resulting downturn for some is coming faster than ever. While we cannot control the impact of variables like COVID, inflation, higher interest rates or tariffs, we can structure our business operations to build some “cushion” for these types of impactful events.

We know these various challenges will arise at times, sometimes when we least expect them. With this in mind, let’s develop a plan to overcome them. Remember, tough times don’t last; tough people do!

What can you do? First, develop a plan for what you want to achieve, or as Stephen Covey often stated, “Begin with the end in mind.” What are the obstacles you will potentially face, and how can you mitigate these? Set dates for the steps you will need to take and determine who will be implementing these tasks. Otherwise, you could end up like the four people: Everybody, Anybody, Somebody, and Nobody.

Everybody agreed that a task was essential. Anybody could have implemented the next step. Somebody should have taken charge, but, in the end, Nobody did. The result? They were “painted into a corner” with no way out…

Don’t get caught in this trap. Develop a plan, monitor its implementation closely and adjust it when necessary. Stay the course, and you will be “Ready for the Big Dance” when good times arrive, instead of sitting on the sidelines, wishing you had made some changes.

“A good plan is like a roadmap: it shows the final destination and usually marks the best way to get there…”

                                                            H. Stanley Judd

Let’s take your business to the Next Level!

Will You Be Ready for the Big Dance?

There seem to be a lot of downtrodden businesspeople these days. They are discouraged about inflated costs, high interest rates and difficulty getting employees to perform.

When things get tough, “Cost Cutting” often becomes the mantra. To an extent that is fine. However, we cannot simply save our way to prosperity by only cutting costs. If it were true, all we would have to do is reduce our expenses. On the contrary, I suggest that you only cut costs to the extent that it does not hurt the performance of your business.

In 2009, I watched some dairy producers cut back on feed costs to offset the greatly reduced milk prices. While that may have looked okay in the short term, in the long term, it really stymied their operation’s performance. When milk prices rose again, they were not prepared to respond, and cows did not come back into their maximum production very quickly. They were lackluster, at best. Profitability suffered for at least another year.

We are going through another trying period of inflation, high interest & tighter margins. With that in mind, let’s limit our cost reductions to the items that do not directly impact productivity of your business.

Motivational speaker Les Brown tells the story of how, early in his career, he had wanted to be a DJ, a disc jockey. An experienced adult told him that he had to be hungry & ready to take action. He went to a radio station in Miami and was rejected for a DJ position numerous times.

However, on the advice of his mentor, he studied and practiced being a DJ, because he was advised that it was far better to be prepared & not have a job, than to be unprepared when an opportunity did come along. One afternoon, his chance surfaced when another DJ was drinking heavily and could not finish his show. Les Brown stepped in, completed the show, and, as the saying goes, “The rest is history.” However, what would have happened if he, not having a current opportunity, had just not bothered to be prepared?

My point is this. Be prepared. These challenging times with high inflation and higher interest rates won’t last forever. Tough times don’t last, but tough people do!

Watch your costs and adjust them where you can. Just don’t stifle your operation’s productivity in the process, and you will be prepared for success, i.e. “Ready for the Big Dance” when better times arrive, instead of sitting on the sidelines, wishing you were more prepared.

“You gotta be hungry!”

                      Les Brown

Let’s take your business to the Next Level!

What Ever Happened to Cost Control?

Peter Drucker once stated, “In cost control, an ounce of prevention is worth a pound of cure.” This has never been more true than it is today.

Since the joyous period of Covid and the intense & the extensive damage that it inflicted upon us, costs for many businesses have simply been out of control. How could this have happened?

Well, I would suggest that the damage stemmed from well-intentioned interventions. It suddenly came into vogue for our government to throw money at the challenge to keep our economy going. Initially, this helped as businesses struggled to keep their doors open (or add a drive through window…).

Unfortunately, their last $10 Trillion infusion pushed us over the edge, financially. The result was severe levels of inflation. While we have now been able to get this under control, as the saying goes, “the damage is already done.” Typically, once the price of various items goes up, they tend to not come back down. Who pays for this?

The end user or consumer, and it becomes a difficult cycle to manage. While you may already have solid cost controls in place within your business, we cannot afford to take our eyes off the goal.

Drucker cited a pharmaceutical company which, during a highly inflationary period from 1965-1995, grew almost eightfold, adjusted for inflation. They simultaneously held their cost increases to a fixed percentage of their increase in revenues. They controlled their costs by limiting the rise in costs to 6% for every 10% increase in revenues. After several years, they also strove to make sure that their costs went down in the same proportion as their sales decreased in any down periods.

Not to oversimplify this process, but begin by asking yourself the following question: “If my sales were to decrease by 10% this year, where can I decrease my costs to offset this, without impacting the productivity of my operation?”

It is only a start, but it can be the beginning point for vastly improved profits. If you need assistance with this process, please let me know.

“I am not a product of my circumstances. I am a product of my decisions.”

                                                            Stephen Covey

Let’s take your business to the Next Level!