Tips for Dairy Producers Having Cash Flow Problems
John Ellsworth with tips for dairy producers having cash flow problems
This week, John Ellsworth of Success Strategies sat down with Joel Hastings of DairyBusiness.com for an interview. In it John gives some tips for producers and business owners who are “stuck.” That is when they are faced with a number of problems, and just can’t decide how or where to begin to solve them and how they can move forward.
Today we’re with Jon Ellsworth with Success Strategies. Jon your latest column describes dairy farmers and business owners for that matter, who might be dealing with real cash flow problems and they just feel stuck unable to make a decision about making changes. Talk a little bit about that situation:
Well Joel, Good morning and glad to be here with you! I would suggest that, that’s sort of an element of the industry or it’s a byproduct of what we’ve seen the last four years. Cash flow has been really tough, tight low milk prices in the overall sense and unfortunately, as you well know and saving your life and mine know, the fixed costs, none of them are static either. They’re on the increase as well, so, when you get a squeeze on the revenue side and the fixed costs stay the same or go higher it makes for some difficult cash flow and people are, I think, people are having trouble making some decisions simply because there’s so much uncertainty. It used to be a given that you could find financing or refinancing with banks, but, the banks have been coming back to the point where they’re a little bit scared or at best cautious. And can we blame them? I don’t think so. I think that they do what they can for the most part but even those people that are getting their renewals done for their loans are actually, it’s taking long, there’s some real caution in the process. So I think the combination of the tighter cash flows for loan renewals or lack of financing being available for some people has created some paralysis. People are saying, “Jeez, I’ve never dealt with situations like this so I don’t quite know how to handle that.”
Yeah. Well, John, in your column you talked about some concrete steps that a dairy farmer business owner can take to kind of deal with that situation: where it’s just hard to know how to move forward. Talk a little bit about the the strategy that you outline:
Okay, it’s really pretty simple, there’s four quadrants and you can do this at home. You can take a sheet of paper and do this, but, this actually comes from Dan Sullivan founder of the strategic coach organization who is one of my business coaches and a great help to me in my own business. Dan has a saying of his, “All progress begins with telling the truth . . .” and the reality is that’s what we need to do when there are a million things going wrong or it seems like a million things. Clarity is what you really need and so this little process of identifying, you take this sheet of paper, split in four quadrants: the top left you list the dangers which are things you could possibly lose, the top right we list obstacles which are things that are keeping you stuck if you will things that we can’t seem to overcome, the bottom left we list weaknesses which are things you’re lacking things I can do better “If I have this . . .” for example, and then the bottom right we list the setbacks kind of like a SWOT analysis, this you and I talked previously, but, the setbacks in the bottom right corner are things you’ve actually have lost such as profitability. So what you do initially is a quit, I call it a brain drain, you basically list the the primary dangers, primary obstacles, the primary weaknesses, and the primary setbacks and then from the list under each of those four you pick the one item in each quadrant that and oftentimes they’re very interrelated that you need to focus on. What’s the most important of those four quadrants of each item in those four quadrants?
And as you assess those you try to rank them or does it become kind of obvious where you have to start because getting started sometimes is the biggest challenge?
Well, yeah, I have five problems for example, which one do I start with? The key is to list them all and then I think it’s sort of self intuitive that when you look at your list of two items, five items, whatever, in each of those four quadrants you’ll be able to identify as a business person and you’ll identify the most significant, the primary one you need to focus on. And remember, the whole process is built around unparallel or thinking so and you know and I know everyone knows when you have a lot of problems on your hands all at one time you can just become overwhelmed so to speak and I think the key is you unparallel your thinking by focusing on the one item in each of those four quadrants that’s most important and then realize that things need to be changed. The whole reason for doing this is you have to ask yourself, “Well, gee, I got them. I got my four primary items identified. What can I do with them? And oftentimes I find, like I listed low note price as a danger, the primary danger, but it could be things like low feed inventory, reproductive problems, but, I circled low milk prices which led to my primary obstacle of weak cash flow. I also listed things like not having a generational plan for the next generation to come in, but, that’s probably not a significant upfront as week cashflow. The weaknesses was things were lacking: a feed line that’s maybe grid the balance is greater than your inventory; which is never a good thing to be in with a bank. They called it being upside down on your feed line, it’s not a fun situation, but, maybe needing from the need for additional finance that could be my primary weakness that I’m lacking. And ultimately, all those things: the low milk price, the weak cash flow, and the the need for financing have all impacted my profitability. So, the thing that I think we then have to go on to do is focus and ask ourselves what can I do with this information? I freed my thinking up a little bit now, what can I do with it in my particular business? It’s gonna be a little different for everybody, but, I think it’s crucial that people are able to focus in on those items. I use the example of Viktor Frankl who was a survivor of Auschwitz, the vilest concentration camp in the during World War II, and one of the things he observed was, his actual survival depended on the realization that his old life is over. It’s not a life-and-death situation in the dairy industry, but, I think we need to use some similar thinking. We can’t run our businesses going forward like we did 20 years ago. We need to spend more time planning and working on the business instead of just in the business because while as a dairy man I may not be the marketer of my milk rotationally I still need to be involved in all processes all thought of activities of the industry and so hopefully that makes sense and that’s the reason I think people need to focus in on this quadrant to identify their primary dangers obstacles weaknesses and setbacks that they have actually have had to happen.
Good job, thank you. We hope that information will help some folks as they deal with today’s dairy economy. I’m speaking today with Jon Ellsworth of Success Strategies, he’s a regular columnist in dairybusiness.com. John, thank you for being with us. This is Joel Hastings for dairybusiness.com. Thank you.
If you would like to see the video of this interview you can see it here.
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I recently saw an excellent movie by the title listed above, and I must tell you – It was a wonderful and very touching story. I’d highly recommend you see it! However, I’m not going to tell you any more about the story, simply because I don’t want to spoil it for you, but do yourself a favor & go see it.
It is based upon a book by the same title, written by Garth Stein. One of my favorite quotes from the movie revolved around a discussion of whether the main character should actually enter an upcoming road race, and he was advised as follows:
“There is no dishonor in losing the race. There is only dishonor in not racing because you are afraid to lose.”
Wow, I thought! That is so appropriate for the dairy industry, particularly from 2015-2018. Have you found yourself looking at some of your business decisions in this way? I have been working on a financial restructure for almost three years for a Client of mine. That may seem like a long process, and it was. However, they were in no shape to be refinanced when we started this process. They had not been profitable in 2015 or 2016, a fact that their banker was happy to point out whenever we met.
Yet, that is the very reason the quote above resonated so much for me. The entire process was a battle, and sometimes it felt like we were losing, BUT, I knew that if we’d just stay with the process, we would eventually win out. On several occasions, I was told that I was off in my projections. First, I was “too high” on my estimated Real Estate value, so I suggested that the bank appraise it. Guess what? Its value came in $300,000 higher than I had estimated… Next, my milk price projections were too high, but ironically, they came in very close to my numbers over the following six months…
Yet, what could we do, but push forward? 2015-2018 was a very challenging time for dairymen, and just following the advice in the quote above represented our only hope. What else did we do? We asked “What do we need to change?” Here are the areas that we fine tuned as fully as possible:
- The Feeding Program – There were lots of ration adjustments. My hat’s off to the Nutritionist here!
- Milk Pricing – Thank goodness for Milk Options, DRP & other programs that are available.
- Labor Efficiency – Cows milked per hour & per man was studied extensively. As a result, we were able to make great strides in these two areas.
- Milk pounds per cow per day – We were simultaneously able to boost this number, and I am so glad we did.
- Profitability – Remember how I’ve said that if you measure something, you can understand it? If you understand it, you can control it, and if you can control something, you can improve it (A quote from my Business Coach Dan Sullivan). Was that ever true here! We were able to become profitable again in both 2017 and 2018. Further, we are positioned to soar financially this year!
However, what if we had chosen “not to run the race,” simply because it looked like we might lose. On the contrary, I would encourage you to stay in the race & win! It’s not always about being in 1st place either. Having completed one 26-mile marathon myself, I can tell you that I was far from being in 1st place, but believe me when I tell you that completing the 26 miles is a “Win” in itself.
Let me leave you with these thoughts:
- What changes do you need to make? If you’re not sure, talk to someone who knows. I would be glad to visit with you, if you feel I can assist you.
- What would the impact of these changes or improvements be?
- What steps do you need to take? Please realize that this may be the best investment of time that you will make this week.
In closing, what item, if you improved it substantially, would represent a major breakthrough for you, your business, your Team or your Family? Think about it, and if I can help, please contact me at: firstname.lastname@example.org
Here’s a suggestion for you. Sign up for our new Success Strategies Business Navigator Program. If you are open to learning new concepts and discussing them with other producers, you should take a look at this new program that will start this fall. It’s completely online, freeing you from travel but offering you an opportunity to learn from industry experts in the areas of milk marketing, management, financial analysis & banking/finance. For the value of the milk production of one 85 lb cow for a month, you can enroll in this quarterly workshop program for one year. What have you got to lose? Check it out at:
You won’t regret it. I wish you the very best for a success-filled year!