Tag Archive for: Finances
We have been facing a tough business environment these past four years. We have seen ridiculous inflation as a direct result of the enormous “spending packages” during the post Covid period. This inflation, in turn, led the Federal Reserve Board to increase interest rates by 5% over a two-year period.
This was the foundation of their efforts to rein in inflation, but, as usual, “they were late to the game” and now appear to have over-corrected in their actions. They have suggested that we are “almost there” on controlling inflation, but the pain seems to be spreading throughout the entire economy.
I’m not seeing prices of most inputs drop, even though they may be rising at a slightly slower pace. In this scenario, I have noticed that the process of acquiring new financing or even completing annual renewals for Clients has taken extremely long, in comparison to the past. I wonder why…
We have more information available to us on all businesses than we have ever had. There is nothing hidden, especially with the power of the internet and more recently the advent of Ai and all its opportunities.
With all the information we have at our disposal, what could be the hold-up on loans? Is it information overload on the part of Loan Officers? Is it extreme top-down management at banks, where no one has any authority to approve loans. Anytime there is a committee involved, it seems like the approval process grows exponentially. Could it be the “fear of making a mistake?” Consider the following:
| “Let our advance worrying become advance thinking and planning.” |
| Winston Churchill |
I recently had a Client for whom I was seeking refinancing. Their approval took over a year. They have excellent equities, solid inventories, have been profitable in three of the last 4 years but were caught in the tumult of a bank buyout where their lender got absorbed by another lender. It was challenging, and, at times, I felt like I was leading the new loan officer through a finance course. I can assure you that it was taxing.
To avoid this, I suggest you always have the following information available, and this is something I helped this Client to develop:
- CPA Prepared Financial Statements
- Inventory Reports
- An updated Cash Flow Budget
- Responses to FAQs of bankers, regarding management decisions & plans.
What is the Next Step for you? Is it time to “Reset?” In my next blog, I will address that process.
Let’s take your business to the Next Level!
After eight years in the banking industry and 26 years of consulting on finance & strategy with Success Strategies, Inc., I have concluded that achieving positive cash flows in your business revolves around several key items.
First, I absolutely believe that if you measure it, you will understand your cash flow far better. If you understand it, you can manage to get better control over it. Undoubtedly, if you gain better control over it, you will be positioned to improve it. While this set of principles may sound simple, it can be rather evasive at times. Additionally, you are constantly being faced with changing variables or factors that, sometimes, you were not expecting.
Regardless, all success in this arena begins with measuring your cash flow. We have a software tool for the dairy industry called the Success Strategies Advantage™. It will measure your financial results and provide you with a budget that is based upon your region of the country, i.e., the “Averages” of various Revenue sources & Costs per 100 pounds of milk. In a moment, I will explain what other tasks it can fulfill for you.
Second, you must know your Break-Even levels. In other words, what could you change on your multiple Revenues or Costs, while all other variables remain the same, and still not lose money. This is extremely valuable information to have at your fingertips. Why?
Well, if you are losing money, your Break-Even numbers will tell you what you need to change in order to stop losing money. Another approach would be to ask yourself, “What are potential items I can increase (on the Revenue side) or decrease (on the Expense side) to achieve a Break-Even level and, better yet, start making money!
I have had Client situations where we have literally boosted revenue and/or cut their costs $1.00-2.00/cwt, and the program clearly showed us where they were spending too much money, in comparison to other producers in their region of the country. Would that help your operation to be more profitable? Absolutely! It would in most businesses.
Using the program, you can also run some “What If” scenarios to measure the potential impact of adding more cows in your dairy herd, boosting their production per cow or adding new equipment or automation tools that can lead to lower costs. This knowledge can assist you to make better decisions. If you have a more solid grasp of what you are investing in and the potential impact of that item or variable, you can feel more confident about the choices you are making.
Hopefully this overview has been helpful to you. I would urge you to check out the Success Strategies Advantage™ software at www.success-strategies.com and start a free trial. It’s on our Home Page – just look for the Milk Cans.
What is the Next Step for you? Please let me know if I can help you. You can reach me at john@success-strategies.com, and consider the following advice:
“Success… seems to be connected with action. Successful men keep moving. They make mistakes, but they don’t quit.”
Conrad Hilton, Entrepreneur
Let’s take your business to the Next Level!
I recently spoke at the Amelicor Corporation’s Conference in Las Vegas and while I was there, I saw someone win $1,000. I asked him what he would do with his winnings, and he responded that he would probably just gamble it away….
It reminded me of the story about the three lottery winners who were asked what they intended to do with their monetary awards. One said he would buy his parents a new home, because they had been so good to him. The second winner said she would quit working and take a trip around the world. The third one said he would probably just keep farming until he lost it all!
While gambling might be fun for some people, it is no way to run any business. Frankly, you already assume numerous risks every month, including weather risks, health challenges, and rising costs due to inflation. Why be subjected to price risks, too?
If you are running a dairy or other agricultural operation, consider using Put & Call Options to reduce your price risk. As I explained in Las Vegas, the Dairy Revenue Protection program can lower your price risk by putting a “floor” under the prices you receive. If market prices drop, you are covered. If prices stay high, you lose the premium you have paid, but the good news is that you can likely afford it, since your prices were higher.
Sometimes I hear producers complain that they “lost the premiums paid for their price coverage.” However, I remind them it is a form of insurance, price insurance in this case. When their house doesn’t burn down, they certainly don’t call their agent and suggest that “they really didn’t need the fire coverage.”
Of course not. To not be covered would be way too risky. In fact, banks won’t finance a house or business property that is not properly insured. The day may be coming when banks are unwilling to finance your business without sufficient price coverage. The current trends are certainly in that direction.
Please don’t get too comfortable with assuming excessive price risk. Think about it.
What is the Next Step for you? Please let me know if I can help you. You can reach me at john@success-strategies.com, and consider the following advice:
“Successful people don’t control events; they control their response to events.”
Dan Sullivan, Co-Founder of The Strategic Coach
Let’s take your business to the Next Level!
The last few years have been fairly challenging in terms of inflation, the resulting higher interest rates, considerably higher operating costs and only average revenue streams to offset these higher expenses. It’s been a classic “Cash Flow Squeeze.” I imagine that the sales of Rolaids are higher as a result…
While this has been challenging, we need to set a course of action that will be beneficial to you and your business. As prices received start to rebound and some costs begin to decrease, it’s crucial that we put a plan in place. Here are five suggestions:
- Talk with your vendors about price relief or better payment terms. Remember, they only thrive if you survive. Customers going out of business are of no help to any vendor. Their policies, while they may seem tough, were put in place because of customers who went broke &, hence, left the vendor unpaid. The same policies were not necessarily set up for you, so communicate with your supplier.
- Build your banking relationship through better reporting, closer monitoring of your cash flows and then communicating with your loan officer, rather than surprising them with unwelcome news at the last moment.
- Diversify your operations when it makes sense. I know, someone is going to say that they diversified their operation by adding almond & walnut orchards to their dairy, and now they are all hurting. However, you must admit that this scenario is rather unusual. They will bounce back. Methane production may fit your dairy facility, positioning you to take advantage of the growing demand for energy.
- Is expansion the answer? Greater efficiencies and economies of scale can be positive factors as your industry rebounds.
- Are you following the advice of your CPA, your Attorney or other Consultants you use? Why pay for their advice and then do nothing? I believe that is the definition of insanity – doing nothing and then expecting different results.
This brief list provides you with several ways to find financial relief for your business. What is the Next Step for you? Please let me know if I can assist you. You can reach me at john@success-strategies.com, and consider the following advice:
“Everyone who got where he is had to begin where he was.”
Richard L. Evans
Let’s take your business to the Next Level!
I was recently thinking about two words that are quite similar. Those words are Creative and Reactive. They contain the same letters but have different meanings. In business, as in life, they represent vastly different approaches.
Let me provide you with some real-life business examples:
- Your bank emails you and suggests that your Inventory Report is late. You react by finally submitting it to them. The creative approach would be to already have submitted the report. Hence, in response to their request, you forward the completed report that you’ve already submitted 2 weeks earlier. Check mate!
- In a reactive state, you wait until you have substantial Accounts Payable past due over 120 days and then attempt to figure out how you will ever get them caught up… A more creative approach might be to discuss the tight cash flows with some of your vendors to see if you can get better payment terms or talk this over with your banker, in anticipation of upcoming budgetary challenges. Then, you will be prepared through a credit line increase or a possible real estate refinance.
- A reactive borrower waits until interest rates are supposedly at the absolute lowest point, even though the Prime Rate has been at 3-3.5% for 15 years. A creative borrower looks for a fixed rate that he can live with, in terms of his budget, and gets it locked in before rates climb 5.50%, as they have during the past two years.
- A reactive person asks, “Why put pricing options in place? Why spend the money for options when prices are so good?” A creative person considers putting a floor under his prices as a form of insurance to protect his margins in good times and in periods of low prices, rather than just in times of calamity.
- A reactive businessperson simply calls 911 when a worker gets hit with a heart attack or other serious ailment & hopes for the best. A creative one sets up protocol to not only call 911, but they also have employee meetings where workers can learn about safety issues and even learn CPR.
- Going back to fixed rate loans, when rates were lower & times were better, the reactive person suggests they can always fix rates later. The creative borrower watches rates closely, because you never know when an industry can be hit with a downturn, low revenue streams or higher input costs, as we have seen during the past 24 months. He fixes rates when it makes the most sense, not in the middle of a cash flow squeeze when banks may be reluctant to offer new financing.
As you consider these comparisons, which one best describes you – Reactive or Creative? This is a crucial question for you to address. Your future success depends upon it. Please let me know if you would like some assistance at john@success-strategies.com, and consider the following advice:
“You, too, can determine what you want. You can decide on your major objectives, targets, aims and destination.”
W. Clement Stone
Let’s take your business to the Next Level!
About five years ago, I suggested that banks were making it more difficult to acquire operating lines of credit, especially in the dairy industry. In fact, I predicted that within ten years, they may not offer these credit lines.
I wish I had been wrong, but the reality is that it is becoming more challenging to acquire these lines of credit, especially given the challenging profitability levels throughout agriculture these past several years.
In all fairness to the loan officers who provide these lines, they have a tough role to play. They are caught in a difficult balancing act of serving the needs of their bank customers for loans, while also protecting the assets (loan dollars) of the bank from default.
What can you do? If you can acquire these lines of credit, be prepared to provide monthly inventories & position reports. Does this sound like a lot of work? It may be, but it also represents the best way to protect your Balance Sheet. One of the biggest shortfalls I’ve observed in operations with financial challenges is negative Working Capital.
For example, the past 18 months have seen high prices for feed & commodities, hurting the profitability of dairies, and pushing their Loan-to-Value % up on their lines of credit. This may also have happened with dairy operations on their Herd Loan LTV %, as they bred with more beef semen and thus maintained fewer dairy heifers. The resulting feed costs are lower, but LTV % may suffer.
What’s the answer? Monitor these items every month, and if you see a deteriorating trend, do something about it. This is all part of protecting the Balance Sheet of your operation. This, combined with a regular monthly Cash Flow Analysis, will build your business profitability and also boost the relationship you have with your banker.
This tripod of developing a stronger Balance Sheet, protecting your Cash Flow, and growing your bank relationships will help position you for greater success.
As you consider these challenges, do you have a plan in place? Please let me know if you would like some assistance at john@success-strategies.com, and consider the following advice:
“A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.”
Winston Churchill
Let’s take your business to the Next Level!
Recently, I was reading a book by my Business Coach Dan Sullivan entitled The Great Meltdown. In it, Dan describes how our entire world is experiencing a “meltdown” in which bad news of high costs of Money, Energy, Labor and Transport (MELT) are wreaking havoc on many operations’ results.
Dan states that “the costs of MELT determine economic growth and progress or decline and collapse. Their combined, interactive costs are one simple, helpful indicator of the direction of economic performance in any market or industry. In short, when the cost of the four MELT factors goes up, progress goes down.”
He goes on to say that “when the MELT costs rise, there’s a dramatic separation between people’s circumstances.”
With that factor in mind, what’s your plan? As bank financing gets tighter (and more expensive, what are your options?
- If borrowing Money becomes more challenging, can you shift some of your short-term loans onto longer term assets such as real estate? Loans with a longer amortization period can help immensely with your cash flows, by lowering your monthly payments.
- Energy has become more expensive for all businesses. Part of this has been caused by government restrictions on oil exploration in the U.S., and part of the increase is a result of the transition, successful or not, to new forms of “green energy.”
- On Labor, we all know that the cost is increasing (just to keep up with inflation), but what about productivity? Are we making gains there? The cost per hour is unlikely to drop in the short term, so unless the “productivity” per hour jumps, we will be faced with some genuine problems…
- The cost of all Transport has been rising as result of both the Energy & Labor costs climbing. This has become clearer as we require 5 days to simply deliver a letter that used to arrive in two days and as we observe that the time & costs of getting equipment parts has grown considerably.
As you consider these challenges, do you have a plan for overcoming them? This is not a task that can be overcome in one meeting. However, I do believe that if you measure these items, you can better understand them. If you understand them, you can undoubtedly gain more control over them, and if you can start to control them, you will be able to improve them.
I’d love to visit with you more about my work with other Clients on these areas and how you, too, can achieve an improved outcome. Please let me know if you would like some assistance at john@success-strategies.com, and please consider the following advice:
“Let our advance worrying become advance thinking and planning.”
Winston Churchill
Let’s take your business to the Next Level!
I was recently reading an article by Charles Hugh Smith entitled “Five Themes Will Decide This Decade.” Frankly, it was scary to read these themes, but he may be correct.
In the article, he listed the five themes as Sclerosis, Dysfunction, Debt Saturation, Power Asymmetry and Nobody Trusts Anyone. He describes Sclerosis as a power grab by a few people in our society, regardless of its impact on the rest of us. He suggests that this problem cannot be solved, but I believe it can be cured at the polls.
His second theme was Dysfunction, a state where nothing works, and there appears to be no self-correcting systems. Have you mailed anything recently? This is being compounded by the third theme, Debt Saturation. No matter how much money we throw at a problem, things do not seem to improve. Are we headed there with our current government borrowing?
His fourth theme revolves around Power Asymmetry, where we start to feel like we have little control over anything. That is challenging, but the saddest theme he included is a society where Nobody Trusts Anyone. This has been partly created by the Covid pandemic and the way it was handled. However, as he points out, the ultimate problem with low trust is that it can create a stagnant economy, which may be happening right now, accompanied by inflation. This combination is known as “Stagflation.”
My suggestion? Let’s change our approach to each of these themes:
- On Sclerosis, let’s be more entrepreneurial. That is what made this country great, and what will move us forward again. As an entrepreneur, I feel much more in control of my destiny, and you will, too.
- Likewise, when your future depends on making things work, rather than just levying more taxes, being more entrepreneurial is the best approach to becoming more functional.
- On Debt Saturation, let’s start borrowing less. That is how it works for all of us with our home budgets, and it works very well.
- To obtain more power over our decisions, it pays to be more entrepreneurial. I can attest that I feel more “in control” today than I ever did when I was working for banks…
- Finally, if we want to build more trust, I suggest that we follow the advice of my Business Coach Dan Sullivan of the Strategic Coach organization. He offers his best “Referability Habits” as follows:
“Referability, in all places and at all times, depends upon four crucial habits:
- Show up on time.
- Do what you say.
- Finish what you start.
- Say please and thank you.
Although these seem like common sense, a surprising number of people in this world, including entrepreneurs, do not practice these four habits.”
I think you will agree that we need a new approach to our current challenges.
Let’s take your business to the Next Level!
I have recently met with a number of bankers about refinancing one of my Clients. One of them said the deal was too big for them to finance alone, another one said the deal was too small for his bank, and a third one said the industry was too challenging for him today.
Wow! I felt like I was trapped in a Twilight Zone sequel to Goldilocks & the Three Bears! You know: the porridge was too hot, too cold; the bed was too hard, too soft… I understand that parts of our economy are quite messed up right now, and I hope we all remember that in November…
However, we need to balance the risk & return equation. As I have said previously, if the proposal is completely risk free, there is normally little or no return. Why would any bank want to finance a deal with no return? I’d suggest that we look at the potential risks and determine if we have enough mitigating factors to offset that same risk.
Otherwise, lenders, looking for the “perfect deal” could end up like the gentlemen who was looking for the “perfect wife.” He searched and searched for years, and at long last, he finally found her. There was just one problem. She wasn’t looking for him… The same could be true in lending relationships.
I believe it would be far better to complete the necessary analysis and due diligence to see if we can find those mitigating factors to offset the potential risks. Some examples include: a.) Hedging on the Client’s selling prices, such as DRP & DMC for dairies. b.) Contracted prices on many of their inputs, such as feed or fuel. c.) Fixed interest rates, when appropriate. d.) Does the borrower have a plan for success? e.) Do they have a system in place to measure their monthly cash flow results? f.) Are they planning to grow their business in order to become more efficient?
Life goes on, and I will keep searching for the most optimal lender for this Client. Who knows? Maybe I’ll be like Goldilocks and find the one that is “just right.” By the way, if you run a dairy operation and want an easier way to track your cash flows, check out our Success Strategies Advantage™ software today at www.success-strategies.com.
Let’s take your business to the Next Level!
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