Create best practices for good and bad times
Commodity cycles bring opportunities and challenges. Just look at the charts to see how the past decade has played out for ROI in corn and soybeans.
As we look ahead, here is what I have seen the best operations do in good and challenging years:
1. Take time to work on and not just in the business. Every job is essential, but should you do the $30 per hour or $300 per hour jobs in your operation? There are some tasks and duties only you can do for the business. Working in the shop or cleaning equipment might not be one of them, even though those are important responsibilities.
2. Manage profitability through the windshield, not the rearview mirror of your business. Are you running reasonable projections? Do you know your break-even costs? Are you focused on the fundamentals of good decision-making and not just the tax implications?
3. Know your capital replacement needs and the dollars required to make it possible. Calculate your equipment needs for the next three to five years, map out future capital expenditures, and make a plan you stick to — in good or bad times.
4. Create your transition plan. Those who chose to retire in 2015 to 2018 with a good plan had no problem stepping away. They were not caught in the emotional decisions of poor crops and financial years. Besides, even if you’re not close to transitioning, you should at least have a plan.
5. Make a choice. Whatever it is you’re facing or thinking about doing, make a decision. Expansion, diversity, downsizing, upgrading, buying land, transitioning … the list goes on and on. Use your experience, information and gut to decide. Studies show if you have between 40% to 60% of the information you think you need to make a good decision, you will often make the right decision.
ENJOY THE RIDE
At some point, this roller coaster will start descending rapidly. We’ve seen a sharp drop in grain prices. Will it continue? Who knows.
What I do know is the best farm business decision-makers are not encapsulated with the small details daily; they focus on the big picture and implementing a plan.
