First, if you are involved in the livestock or protein industries, you are probably rolling your eyes at this title because profits are currently few and far between. On the other side of the fence, the headline might gain some attention from those involved in the grain industry where profits have been substantial in recent years.
How often have you heard people say, “We are making lots of money; let’s not change a thing?” Analogous to sports teams that have just won the championship, it is easier to get to the top than to stay there or defend or repeat great performances.
What are some of the mistakes profits hide? First, some people will indicate that they no longer need to do a business plan, or develop, plan and execute a marketing plan because they are already profitable. On the contrary, when you are profitable, this is the time to plan and refine your business and marketing models. What aspects of the business will you continue? What will you elect to drop? This is the hard part because some aspects are often linked to the legacy or the heritage of the business’ evolution.
The more you make, the more you spend. Farm record systems analysis finds that living withdrawals and spending have far exceeded the rate of inflation in recent years. Many producers make the mistake of not getting back to basics and doing a personal budget during the profitable years.
When a business is profitable and becomes more mature, there is a tendency to become more conservative, i.e. playing not to lose. Sometimes you must take risks and endure the possible consequence of failure to grow as a business. What are the mistakes that prevent you from doubling profits? Do not get into the trap of using past benchmarks – such as profit numbers – to represent your future goal.
Finally, the best decisions are often made during the tough times. Sometimes regaining focus, getting back to the basics and plain vanilla business principles can be the recipe for success.
Editor’s note: Dave Kohl, Corn & Soybean Digest trends editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at sullylab@vt.edu.