The Ag Globe TrotterDr. Dave M. Kohl
Welcome to the weekly edition of The Ag Globe Trotter by Dr. Dave Kohl.
Inflation, an increase in interest rates, and a shortage of parts, supplies, fertilizer and other inputs critical to operations are just a few of the variables driving the bottom line. Coupling these challenges with extreme weather, uncertain global markets and changing consumer preferences could make one throw up their hands in despair. My engagement with producers and lenders at recent conferences and through surveys and discussions has brought the “cup half-full” approach to a seemingly negative environment. Let's discuss what some of the best managers are doing to adapt and, in some cases, prosper.
Number one on the list is a good to excellent set of financial statements produced by an accurate record-keeping system. Top producers are linking data in production to marketing and risk management decisions, bottom line financials and to overall operational plans. A 360-degree record-keeping system where data and information are a priority is invaluable in an environment with extreme volatility. Procrastination in this area can quickly deteriorate the profit ledger.
Do you manage your financials annually around the tax season or are your financial statements a living, breathing document that is referred to in strategic and daily decisions? Similar to the late 1970s and the farm crisis years of the 1980s, top-flight farmers are taking ownership of their numbers. Cash flow projections and budgets that are monitored can be a fulcrum in developing breakeven points which are imperative in marketing and risk management decisions. Key performance indicators in production, cost efficiencies and target market goals can then be linked to financial aspirations.
Now, more than ever, investing into areas that generate equity on the balance sheet needs to be a high priority. Separating wants from needs, prioritizing capital and operating expenditures, and deciding which costs to cut or increase to capitalize on short-run opportunities all need to be considered.
As I engage with the agriculture industry, more top producers are taking the opportunity to develop formal and informal advisory teams. Older producers are engaging the younger generation to provide vigor in their strategies. As one producer indicated, “Do not let experience be your enemy!” Still, others are networking with peers or people with expertise in vital areas of the business such as agronomy, nutrition, finance, marketing and risk management. Collaboration and networking are gaining momentum amongst the top performers. This is part of grounded communication skills that use the blended approach of high-tech and high touch, otherwise known as the human component.
Dr. Kohl is Professor Emeritus of Agricultural Finance and Small Business Management and Entrepreneurship in the Department of Agricultural and Applied Economics at Virginia Polytechnic Institute and State University. Dr. Kohl has traveled over 8 million miles throughout his professional career and has conducted more than 6,000 workshops and seminars for agricultural groups such as bankers, Farm Credit, FSA and regulators, as well as producer and agribusiness groups. He has published four books and over 1,300 articles on financial and business-related topics in journals, extension and other popular publications.
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