In previous columns this year our discussion on the profit separators focused on the financials and, more specifically, how operational efficiency and capital management equate to return on assets. Let's further explore the subject of profit separators by examining some of the non-financial factors that often translate to a positive bottom line.
There is no doubt that businesses that move the needle to the profitable side of the financial ledger have a marketing and risk management program. They follow the process, meaning they utilize cost of production metrics, know their break even points, and understand the dynamics that impact both input costs and output prices. They utilize the necessary tools such as hedging, options, and crop insurance to balance the reward and risk of commodities. Producers who participate in value-added, direct, or wholesale marketing are constantly monitoring input purchases and other factors that can change costs and investments. The power of cash discounts often provides the competitive edge. This group weighs the variables of market concentration versus diversification when purchasing inputs. They also analyze the disruptors of supply and marketing chains. It is true that by following the process that some years many businesses will leave money on the table. However, generally eight out of ten years the businesses that follow the process position themselves to garner profits and minimize losses.
An emerging trend amongst the peak performers is a productive work culture. Whether it is a large family farm operation or a non-family business, work culture is designed for discretionary effort, meaning going the extra mile to get the job done effectively.
Profitable businesses know the power of being interdependent and use alliances. Recently, I observed some young farmers and ranchers raising both crops and livestock sharing machinery, equipment, and expertise to reduce costs and increase production efficiency.
They know the power of advising teams and peer input. Recently, a group of over 12 producers at independent sites were involved in the strategic planning process via a webcast. Some of the peers were operating businesses that were totally different enterprises, which provided the “cross-pollination” to get the creative juices flowing
Finally, more profitable businesses are generally family focused and community oriented. Even though some are not direct siblings, the feeling of family and caring is exhibited in the work culture. These businesses make a point to be involved and interact with the community that often has a vague understanding of agriculture, as a result of being two or three generations removed from their agrarian roots. These organizations have the philosophy of “who cares, wins” not only on the bottom line but in the game of life as we interact with others from a social perspective.
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.