In recent columns, passing the test for volatility and agility along with the lessons learned were highlighted. Now, let's continue the conversation and discuss the business test for resiliency.
In discussing this pillar of business, let's examine the mindset of two different types of producers. One of the first questions producers often ask a lender is a prelude to the resiliency test. Producer A will ask, “Will you have the ability to finance me again with the mindset of surviving another year?” Whether it is the weather, government, or everything else, this producer sometimes fails to accept fault for poor performance. Compare this producer’s state of mind to Producer B who will ask, “How do I compare my performance to other producers? What are others doing for business production, operations, and marketing practices?” This type of producer will also want information and ideas to assist in envisioning the future. The mentality of Producer A is often indifferent, reactive, or fighting the everyday management fires. Producer B is more strategic and proactive. These characteristics will not guarantee success every year but places the odds in one's favor over the long haul. The mental framework of these two types of individuals provides valuable lessons and contrast in passing the test for resiliency.
A specific measure of this test is whether your business is competitive in the cost of production. Knowing the cost of production for each business enterprise is useful in allocation of capital and labor resources to provide resiliency in case of market shifts, when opportunities appear, or if existing markets disappear. Remember, the cost of production metrics are not just a university or consultant budget. This type of information can be used for guidance, but tailor it for your unique business.
Next, resiliency is often measured using your equity or overall capital position. Tenured producers and multiple generation businesses that have been successful, or perhaps lucky, and have a location or other advantages will have a leg up with equity. Equity provides cushion during the down cycle and borrowing capacity or reserve capital if an opportunity comes along.
An overlooked aspect of the resiliency test is preparing the next generation of management. Some business owners and managers procrastinate or fail to teach the management lessons needed to carry on the business successfully to the next generation. Often the urgency of everyday business seems to be more important than grooming the skills and mindset of the next generation to enable them to weather the economic cycles of agriculture.
Passing the business resiliency test will become even more important as the agriculture industry continues to experience volatility and black swan events. Where does your business stand?
Source: Dr. David Kohl, which is solely responsible for the information provided and is wholly owned by the source. Informa Business Media and all its subsidiaries are not responsible for any of the content contained in this information asset.