Get the Inside Right!
February 09, 2018
Featured Guest Writer: Dr. David Kohl
Recently, I was traveling through South Dakota for a series of producer meetings. The drive from Deadwood to Pierre and through Cottonwood, population of nine, was picturesque and impressive for those who love agriculture. In a workout room that overlooked the Missouri River, I noticed a quote on the wall that said, “Get the inside right and the outside will take care of itself.”
While this quote is talking about our health, it could also be appropriate for agriculture. In today’s world, there is considerable noise from social media and other sources of constant information. More often than not, data streams detract and distract one from the more important components of business and life. While it is important to be aware of what is happening around us, building one’s internal fortitude is equally as vital.
As the economic reset rolls along, the focus on the internal components, or the “controllables,” elevates in importance and priority. Thus, let’s take a look at what some of the controllables might involve.
First, working off a good set of records in production, marketing and finance is a very good step. As one of my business partners says, “I want to have the current business status at my fingertips at any point in time.” Remember, a good record system clearly illustrates current cash flow as well as cash flow for the next six months.
Similarly, one must know the limitations on financial leverage or debt. This can be monitored with the debt-to-asset ratio, or the term debt-to-EBITDA (earnings before interest, taxes, depreciation and amortization are paid) ratio. These metrics are essential in expansion, transition and ongoing operations.
Getting the inside right is also knowing the cost of production dynamics so that marketing windows can be taken on a timely basis. Whether for grain, meat or milk, these short marketing windows require the ability to execute a plan. This approach may not provide a net boom, but rather will deliver in incremental profits. However, even just 5 percent better is still an advantage when compared to others.
Most often, when people “get it right” they do not do it alone. In other words, assistance may be required. For example, it is a common practice in the fitness world to hire a personal coach; and the same should be said for the business world. Using a team of advisors to assist and provide counsel for tweaks and adjustments is essential for financially fit management.
On another day of sessions in South Dakota, I ran past the Big River where Lewis and Clark navigated their way to find the Northwest Passage. They planned and executed through extreme noise from weather to terrain and human encounters. They, too, depended on an advisor, Sacagawea, to guide them through that noise. In fact, her guidance was so profound and valuable, statues in her honor are among the most common monuments in America. In many ways, their journey was built on getting the inside right, and perhaps agriculture can benefit from their wisdom.
Please send your remarks to BMC@northwestfcs.com. I would like to know what you are thinking.
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.
© Northwest Farm Credit Services 2018