The agricultural economic reset is now in its fourth year for many commodities. Uncertainty regarding international trade, immigration policies, and consumer preferences have left many in agriculture feeling challenged or even defeated. Yet, some see opportunity. As a general observation, about 40 percent of managers are proactively positioning the business, 30 percent are procrastinating on needed adjustments, and another 30 percent are in denial, blaming misfortune and holding onto the hope for better days to come. For business owners and managers, the difference maker is making decisions not only for economic survival, but to position for opportunity as well. Let’s take a look at some of the difference makers for these businesses.
Keep a Pulse with Record Keeping
One component that differentiates the upper echelon from the lower is a farm record data system which allows managers to quickly grasp the pulse of the business at any given time. An example of such a record system is projected financials (quarterly or monthly) compared with actual results. Any deviations, positive or negative, are quickly identified. An astute manager can then ascertain whether the deviations were caused by macro factors like changes in the markets or economic conditions, or micro factors like a management mistake or good idea. Once that is determined, adjustments and incremental changes can be made along the way rather than at the end of the year when fewer options are available.
Take a Step Back and Think Strategically
Next, those managers and owners making a difference in business performance think strategically, rather than tactically. Specifically, they are making changes in their overall strategy and approach to business profitability. When weighing a new idea or adjustment, these types of producers consider how it will impact labor, production, marketing, and finances. For example, one producer recently cut crop insurance costs in an effort to reduce overall expenditures. After an unexpected hailstorm moved through the area, he was left with a significant cash loss and an operating loan that needed to be refinanced. In another example, one producer was expanding his operation but neglected to estimate the amount of time and money the project would require. As a result, most of his labor was overstretched and left the operation which, in turn, delayed the delivery of his product to market. He was forced to start over, re-think his expansion plan, hire and train new workers, and find another market for his product. It is important to note both of these examples show the downside of only thinking tactically. When one also plans and manages strategically, these types of issues can usually be avoided.
Make a Large Impact with Small Adjustments
Another practice making a difference for businesses is the 5 percent rule. As compared to a magical silver bullet, small changes in several areas of the business are much more likely to bolster profitability. When the business is merely breaking even – or sustaining negative margins – it is tempting to look for the one change or addition that will make everything better. In sharp contrast, the most profitable operations are constantly looking for incremental improvements. They ask something like, “How can I be more efficient in my production?” or “Where am I leaving money on the table in my marketing?” When areas such as production, efficiency, labor, management, marketing, and finance are monitored and analyzed, small changes can add 5 percent to the bottom line more quickly than one might believe.
Examples of incremental improvements may include holding cash or proactively using a line of credit to gain a cash discount. Both instances deliver a long-term benefit for the operation. Additionally, for managers and owners that invest in their business culture and communication, business employees can be especially valuable. Making an adjustment based on an employee observation or suggestion can be an excellent way of implementing incremental change.
Ask for Input on Business Plans
Another difference maker is capitalizing on interconnectivity. Many times, those managers operating in the lower percentage of profitability act independently with a “do it my way” type of attitude. In these situations, it is common to find a manager that blames outside factors or other people for the loss of profitability instead of management practices. Phrases like, “Don’t tell me what to do!” or “I know what I am doing,” are probably familiar around these operations. All too often, this is a fear-based response; they are afraid someone will tell them they are wrong or not good enough. Profit does not come from pride and – especially during an economic reset – we can all use a little help to make it through. In other words, good decisions come from good information and more input is always better than too little. An owner or manager who is engaged in and outside of the industry with successful people and businesses will become better. In fact, relying on an advisory team is interdependence at its best.
Seek Focus in Business
Finally, a major differentiator is focus. Separately, billionaires Warren Buffett and Bill Gates were asked to write down what made them successful. Both men wrote the word focus. While thinking critically and evaluating strategy in a world full of disjoined chatter can be extremely challenging, the ability to focus and execute are keys to success in all fields. Profitable managers and owners monitor the elements they can control, and manage around those elements they cannot. As a side note, when seeking focus in the business, setting goals is a good place to start.
The economic reset is causing many producers, managers, and owners to re-think their business systems and strategies. Simply put, if the current approach isn’t working, it may be time to try something different. Today’s most profitable businesses are doing just that: implementing difference makers in various areas of their business to survive the economic reset and prepare their business to take advantage of changing opportunities.