Beneficial Practices in Today’s Economic Environment
March 28, 2018
At a recent conference, one producer asked what business practices would be most beneficial in today’s economic environment. While he may have been looking for something more earth-shattering, I responded focusing on the basics is critical during any part of the economic cycle. The needs of each business are different, so let’s take a look at some of the basic, fundamental business practices that rank high in priority in the current cycle.
Identify Specific Areas to Focus On
The first and foremost basic practice is an assessment of each major stakeholder in the business. This involves one and five year goals for the family, business, and personal life. In tough economic times, this often requires some introspection or soul searching to define success. Recently, a number of farm managers indicated this process helped them scale back their operations and concentrate focus on their most profitable areas. In turn, this shift resulted in an improved balance between business and lifestyle endeavors.
In addition to personal introspection, the process of setting goals provides for crucial conversations with others to determine which interests are aligned or divergent. The basic practice of goal setting provides focus and structure in a world where information overload can become counterproductive to the business strategy. Without goals, one can easily be taken for a ride on a financial and emotional roller coaster.
Create a Projected Cash Flow
Next, planning and monitoring are critical in this economic environment. The basic practice of projected cash flow can be a big step forward. Actually, cash flow planning is up to 80 percent of an overall business plan for most operations. This process requires one to think critically through production, schedules, cost, marketing, financials, as well as a system to execute the plan. One of the keys of cash flow planning is to periodically compare the actual outcomes with the projections and identify variations. Determine if the variations were due to macro or microeconomic factors, or both. For example, one dairy producer recently indicated he evaluates cash flow every two weeks or upon collection of revenue. This approach allows him to tweak his business plan as production and prices change.
Start Scenario Planning as an Alternative
For those claiming levels of uncertainty are too high to allow for cash flow planning, the answer is scenario planning by identifying key production, price, and cost adjustments that will impact the bottom line and test them at various levels. In a recent seminar, a former Marine – now a beginning producer – shared scenario planning was one of his most valuable tools in the Marine Corps and remains so in his agricultural business. He said, “If it is good enough for the Marines, it is a good practice for any farm.”
Budget Family Living Expenses
Another necessary component to weathering this economic cycle is a family living budget. The link between personal finances and business success has become increasingly apparent. In addition to limiting how much, many businesses face the challenge of limiting how many. As family businesses become larger and more complex, there are often multiple generations or siblings included in business operations. In other words, the number of parties or people drawing from the business also needs to be included in the budget.
Practice Personal and Professional Self-care
Finally, take time to invest in yourself. Especially in stressful times, exercise and healthy eating can be critical to maintain energy and focus. In addition, a supportive advisory team, a network of positive people, or an experienced mentor can be the mental lift needed to maintain vision in an environment that often appears to be clouded with negativity.
One producer shared his story of buying high-priced land just prior to the farm crisis in the 1980s. Of course, he watched the economic environment collapse around him, but never once did he equate his net worth with his self-worth. Leaning on his spouse, lender, and community, today this producer runs a successful business even in the midst of another economic reset. Because of his experience, this producer calls himself a “guide dog,” making time to lend advice to young producers who are navigating the tough terrain.
Implement Basics Best Suited for Your Business
To answer the producer’s question regarding beneficial practices – use the basics. An important part of weathering today’s economic environment is to know the reality of one’s own situation. Some producers may need to develop family budget or cash flow scenarios, while others might incorporate more exercise or the positive counsel of advisors into their routine. Regardless, for those implementing the basics to weather today’s economics, the benefits will last well beyond the current cycle.