Stay on Top

September 3, 2009 07:00 PM

This isn't a top 10 list; these are things any producer can do and that 95% of producers don't. If you're looking for an edge or for ways to get better, these would be a good place to start.

1 I Manage Margins. Too many producers treat input and commodity pricing as separate issues. The past year made it very clear that locking in one without the other leaves you open to a lot of risk. Farmers who locked in $1,000/ton nitrogen may not have been unprofitable if corn was forward priced at $7/bu.

2 I Know What to Stop Doing. The most successful companies and managers spend as much time analyzing and determining what they need to stop doing as they do evaluating new opportunities.

3 I Monitor and Analyze. This makes you much more likely to spot problems and opportunities before it's too late. Business problems are like a cancer: They eat away at profits, cash flow and owner equity. Spotted early enough, they often are treatable.

4 I Use Accrual-adjusted Income to Evaluate Profitability. Cash-basis income often lags accrual by two to three years in recognizing downturns and upturns in profitability. Measuring accrual-adjusted profitability simply requires balance sheets that include inventories, accounts receivable, prepaid expenses, accounts payable and accrued expenses.

5 I Do Autopsies. Evaluate the results of key decisions, whether things went well or poorly. What did you learn? Don't repeat mistakes.

6 I The 5% Rule. Most sustained success comes from doing 20 things 5% better, not one thing 100% better. The most profitable producers perform only about 5% better than average, but they do it over and over.

7 I Employ What-if Scenarios. Think about what could go wrong and what you'll do if it does. Average managers may plan, but they tend to limit themselves to most-likely outcomes.

8 I Eliminate Frustrations. Find out the top things that annoy employees, buyers, input suppliers and funding sources in dealing with businesses like yours. Eliminate those and become the partner of choice.

9 I Benchmark Your Performance. The majority of producers think they are average or a little above. That's not possible. University studies show $100/acre or more differences in net income between the top 25% and the bottom 25%. If possible, compare information at the enterprise level, because whole-farm data can mask offsetting strengths and weaknesses.

10 I The 80:20 Rule. Eighty percent of what we accomplish is produced by 20% of what we do. Figure out what that 20% is and focus your time and resources into doing those things first. As much as possible, delegate or outsource the other 80%, even if those tasks are where your comfort level lies.

Danny Klinefelter is an ag economist with Texas AgriLife Extension.

Top Producer, September 2009

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