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May 2012 Archive for Fiscal Fitness

RSS By: Dairy Today: Fiscal Fitness, Dairy Today

Financial management experts, lenders and accountants share ways for dairy producers to improve money and credit management. Look for help on budgets, taxes, loans, financial performance and even bankruptcy.

How to Think Like a CEO

May 24, 2012

A leader who views his or her farm holistically creates a culture that drives financial success.

Steele Greg (2)by Greg Steele, AgStar Financial Services, Dairy Lending Specialist

As the head of your business, your days are probably filled with the endless details of assuring smooth, profitable operations. Although hands-on management is indispensable, many leaders become so wrapped up in minutiae that they neglect the bigger picture. By that, I mean shaping the culture, values and vision of the company. If those lofty words don’t seem relevant to your business, think again.
Walk into any local retail store and judge how you’re greeted. Are the employees courteous and happy to see you? Are they too busy stocking shelves to notice you? Are they helpful or indifferent? Are they well groomed or sloppy? Those first impressions color your decisions about where you choose to spend your dollars – and, ultimately, the profitability of the company.
Managers focused solely on the bottom line haven’t bothered to form cultures for their businesses, and that shows in spotty service and potentially negative images. However, leaders who think like CEOs understand that the culture they establish affects everything from employee loyalty to the stock price.
The telltale sign of a business’s underlying culture manifests itself in the way employees treat customers, vendors and partners. If employees are proud of where they work, they’ll become company ambassadors, performing their jobs with satisfaction and spreading positive news about the business among friends, neighbors, business acquaintances and even the guy they just met at the ballgame. The same positive (or negative) press can be echoed by vendors, partners, colleagues and other business leaders.
Whether it’s a small family-held business or a multinational corporation, the ethics and attitudes of a business come straight from the top. Lest you think CEO vision matters only to retail establishments, consider the now famous resignation of Greg Smith, former Goldman Sachs executive director. In a March 2012 New York Times op-ed, Smith blamed the current CEO Lloyd Blankfein for losing hold of Goldman Sachs’ culture on his watch, leading to a decline in the firm’s moral fiber. The next day, $2 billion of the bank’s market value was wiped out.
Having witnessed dairy farms that are well run, those that aren’t and everything in between, I’ve seen that CEO-thinking, rather than manager-thinking, directly affects the entire business. A leader who views his or her farm holistically creates a culture that drives financial success. A CEO who clearly identifies goals and expectations – and serves as a living example of those values to employees – garners loyalty and grows the business. Character still counts, and it counts far more than we expect.
But it takes more than fairness and ethics to succeed. CEOs also adopt proven processes, instead of leaving critical aspects of their businesses to serendipity. If you build a business, customers won’t automatically start knocking on your door. You’ll need to work hard, be smart and follow the rules of business acumen. CEO-thinking means running your business like a business by:
• Establishing a path for employee training and development
• Carefully following environmental and employment regulations
• Keeping accurate and reliable financial records
• Financial budgeting and monitoring of key performance factors
• Mandating written leases and operating agreements
• Building a library of necessary documentation
• Preparing a public relations plan
• Giving back to the community in the form of corporate philanthropy
• Encouraging employee philanthropy
• Joining business leadership groups
• Listening openly and without ego to suggestions and criticism
• Maintaining a sense of humor
• Projecting confidence, not arrogance
• Knowing your limitations and seeking expert advice when necessary
Okay, okay, no one said being a CEO is easy! But I don’t need to tell you that it can be one of the most satisfying occupations you’ll ever have. After all, you get to run the show, and immediately witness the results of your actions on your balance sheet and on every employee.
So make the leap from manager to CEO. Should you need a little guidance, AgStar is always behind you as a reliable, knowledgeable resource. Together we can create a culture of success and collaboration that helps your business thrive.

Greg Steele is vice president of agribusiness capital with AgStar Financial Services, ACA. His focus is working with commercial dairy operations that have grown and expanded their business. He provides expertise in the area of finance, business planning, and accounting. Contact Steele at (612) 963-7941 or greg.steele@agstar.com.

Smart Money Management: Accept the “Business” of Dairy

May 11, 2012

Why do many dairymen keep poor money management records? Accurate, timely financial records will improve your monetary rewards and ease your worrying.

Bob Matlick (resized)By Bob Matlick, Frazer LLP
As the average size dairy gets larger and larger, and hopefully more efficient, a completely new level of management is entering into the dairy world.  
I have clients with $30 million (and larger) per annum in gross sales. While your operation may not be that large, many dairies still average in the $2 million to $4 million range. I would argue that this would define your dairy farm as at least a mid-sized business, if not greater. 
I see many producers who keep immaculate herd, reproductive and production records; however, many of those same producers have poor quality financial and money management records that may in turn lead to poor business decisions. I will many times drive home asking myself this very simple question, “Why?”
Why do many dairymen keep poor money management records? Is it because producers are part of an agricultural community that just accepts they are a small business (or at least perceive that thought process)? 
On the other hand, maybe it is because there has always been an adequate (again perceived) profit margin. Maybe the reason is dairymen have been price takers, not price makers -- in the fact the product is perishable and the co-ops or processors took care of the processing, marketing and receivables. Perhaps it is a little of each.
The bottom line: The need for financial records both historically and looking forward is critical to manage the mid-sized business.  
In my opinion, every producer should have cash flow projections for 6-12 months into the future. These are developed from historical data, input from the nutritionist, commodity brokers, veterinarians and perhaps business consultants. They should include all cash outflows and inflows, including capital improvements, living expenses, risk management strategies, principal reduction, and multi-month feed inventory purchases (silage, hay). These should be updated monthly (and timely) with actual numbers and variances in excess of an established amount researched. 
The last step is to add one month to the projection and make any alterations to upcoming months with new information that has been learned in the recent past. You should also have an inventory management system in place to measure feed that comes into the business (whether purchased and/or grown) and feed actually fed and consumed. Remember, more than 50% of your cost structure is feed.
Granted, this may not be a task that can be heaped onto the current management team and or individual owner; however, it is vital, so whether this information is sourced within or through outside or newly hired personnel, you will most likely find the monetary rewards great and be able to sleep a little better each night.
Robert A. Matlick is a partner in the accounting firm of Frazer LLP. Based in Visalia, Calif., Matlick is a management advisory specialist and provides business consulting services to the agriculture industry, with an emphasis in the Western U.S. dairy industry. Contact him at bmatlick@frazerllp.com or 559-732-4135 Ext. 107.
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