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June 16, 2023
The days are getting longer as we are quickly approaching the middle of 2023. Let's step back and examine some of the common and uncommon strategies of business success to ponder for the summer season.
As an educator, speaker and business owner, I have seen firsthand the common threads to business success. Yes, it takes time to plan, some say up to 30 minutes each day. Successful producers also take time to strategize. However, peak performers execute the strategy and accept the consequences. Even more uncommon is a deliberate plan to monitor results. Monitoring includes taking time to compare projected cash flows to actual results, conducting trend analysis on production, price, and costs, and making the necessary adjustments mid-game.
Working capital and quickness to cash is often the choke point for a business. A common characteristic of successful business owners is that they have the discipline to allocate profits to build working capital reserves. What is uncommon is that they keep a financial shock absorber of cash or near cash for those downturns that can occur very quickly. The cash reserve can be used to take advantage of discounts or buying opportunities, which is a real return on investment.
Over the years, one common characteristic of successful business owners is that they know the power of networking with the right people. Whether it is a team of advisors such as a crop or livestock consultant, a lender, peers, or sometimes people outside the agriculture industry, they know the potential magnitude of return on relationships. There is an old saying that your return on relationships (ROR) is equal to your return on assets (ROA) both financially and intellectually.
An uncommon component and Achilles' heel of even the most successful businesses is that they do not have a transition plan. They may have an estate plan to transfer their assets and equity, but what about the management transition? Often day-to-day activities get priority over a management transition plan. Grooming the next generation of managers and workforce can propel the business to the next level. The integration of new ideas and philosophies combined with the wisdom and experiences of the past can yield dividends. Remember, the transition plan is not a sprint, but a marathon that needs to be incorporated into the cornerstones of management discussed earlier in this article.
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 10 million miles throughout his professional career and has conducted more than 7,000 workshops and seminars for agricultural groups such as bankers, Farm Credit, FSA and regulators, as well as producer and agribusiness groups. He has published five books and over 2,500 articles on financial and business-related topics in journals, extension and other popular publications.