Tag Archive for: Finances

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!

Where Have All the Lenders Gone?

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!

What is the Secret to More Positive Cash Flow?

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!

Are We Getting Too Comfortable?

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!

How Do You Spell Relief?

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!

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How Do You Prefer to Spell It?

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:

  1. 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!
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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!