I am a big believer in perspective. It's easy, in the grind of a growing season, to become preoccupied with day-to-day operational activities and temporarily lose sight of big-picture management issues. One way to step back from the details is to focus your attention on what are often called the four Cs: cash, credit, costs and customers.
These are big-ticket items and can help you retain perspective and serve as a quick scorecard of sorts in the process of assessing the overall position and strength of your business.
“Cash is king,” as the adage goes. You have likely heard that a thousand times, but the reality is no less true now than the first time you heard it.
In volatile times, a strong cash (or working capital) position is even more important. It can provide an initial cushion should you enter a tough period. What's more, it gives you the flexibility to capitalize on opportunities. Volatility tends to shake out the weak, reveal the strong and highlight opportunities for the smart, flexible and innovative growers. That's exciting.
How is your cash position? Are you positioned to take advantage of a situation when it presents itself?
Despite the broader financial problems that underlie our current economic situation as a country, the ag lending environment is still quite good. For example, concerned with the possibility of long-term inflation based on the government's substantial spending patterns — and the impact that could have on interest rates — we have clients who made the decision to refinance some appreciated farm ground to fund the expansion of their operation. These operators were able to lock in 15-year money for 6.25%. Their perspective is simple: Long-term they expect their return on equity to exceed their borrowing rate, and while rates could go down slightly there is a lot more risk to the upside.
How is your credit situation? And, since now would be a less than ideal time to be looking for a lender, how is your relationship with your banker? Good, honest communication backed up with numbers and a risk-management plan will produce surprising results. Try it.
Are your costs in check? Many in agriculture have had a nice run in recent years. When that happens, it's easy — even human nature, perhaps — to get a little sloppy on the cost side of the equation. Between now and harvest take the time to take a critical look at your expenses. Yes, input prices have gone up, but relative to five years ago, are your expenses up proportionately or are there opportunities to tighten your belt a little bit?
The fourth C — customers — is one that doesn't necessarily resonate on the first pass with many farmers. Businesses on main street have customers. But do you as a farmer have customers? You bet you do. Start with your landlords. In many ways they are both your biggest and most important customers.
The best businesses — no matter what the industry — have an unending mission to engage and benefit their customers. Shouldn't this apply to your landlord relationships? Often it doesn't take a great deal.
In my experience, the time and effort spent to check in with a landlord, to tell that person how things are going on their farm, or to drop by with somesthing as simple as pictures of the crop are investments in the relationship that pay off many times over. Seemingly little things like these can create a competitive advantage in terms of leasing ground, and every competitive advantage you have that your competitor does not can mean real growth and profits.
Moe Russell is president of Russell Consulting Group, Panora, IA. Russell provides risk management advice to clients in 34 states and Canada. For more risk management tips, check his Web site (www.russellconsultinggroup.net) or call toll-free 877-333-6135.