When financial times are good, businesses have the tendency to operate on economic autopilot. This is simply a human characteristic. When things seem to be working well and there are no visible problems, we get comfortable.
Ag businesses are no different. An economic storm is ahead with turbulence and various other obstacles that will need to be addressed. Low commodity prices, combined with expenses that have been slow to decline, are driving many operations into the red. Now is the time to take over the controls of your business to fly around the worst part of the storm.
A Complex Solution. Unfortunately, there is no silver bullet or easy fix. In fact, it’s quite the opposite.
Instead of a single part of an operation resulting in a potential fix for the entire farm’s financial issues, it’s more likely every segment of the operation will need to contribute to solve existing problems.
One of the biggest difficulties during low-margin or loss environments is maintaining adequate working capital. Many operations still have fairly strong working capital. On the other hand, some operations already have burned through a significant amount of it. The key might be your ability to manage working capital moving forward. This doesn’t necessarily mean we need to take a big swing at every line item. Yet subtle changes at every level can have a dramatic impact on improving the bottom line. One note of caution: As you consider subtle changes, be extremely careful that your adjustments won’t negatively affect productivity. Remember, the quickest way to lower costs is to increase yield or productivity.
Strategically Improve Financials. The chart below includes examples of one operation’s brainstorming activity to come up with solutions for working capital and cash flow.
When going through this process on your own farm, include anyone in the operation who might have ideas for improvement, including family members, employees, lenders and consultants.
Once you work through the brainstorming process, the real work begins. As in the brainstorming activity, involve all appropriate parties in taking disciplined actions to accomplish results.
First, make sure the list is specific enough to make real changes. Second, prioritize the items. Try to tackle some of the easy ones first, but also emphasize the items that might have the biggest impact on the bottom line. Third, take action. This process includes assigning people to tasks you’ve identified as mission critical. Consider having a discussion up front about the process for executing goals and then hold follow-up discussions along the way.
Identify Your Destination. Place a specific deadline on each action item, and keep your lender in the loop. Demonstrate your ability to handle difficult times. Regardless of whether you’re fiscally strong or not, this type of activity can only bolster your overall business. Take the controls and be the captain of your own destiny. For a copy of my Working Capital Improvement spreadsheet, email email@example.com.