Leading producers share some common traits and management approaches that help them survive down cycles, says Nate Franzen, vice-president of agriculture, First Dakota National Bank, Yankton, S.D.
1) Know their numbers. “They have timely and strong financial record keeping practices,” Franzen says. “They provide accurate balance sheets, understand their historical profit and loss trends (not just for tax planning purposes), and budget for the future. They compare their budget to actual performance on a regular basis. Monthly is recommended. They communicate their financial position with other key stakeholders in the operation on a regular basis. Having it in your head is not good enough. What if something happens to you? Can others find what they need to go forward? Accurate enterprise analysis is a must. This is the process of allocating all costs by enterprise and equating that to accurate break even analysis. Accurate breakevens are the foundation for a good marketing plan. With today’s technology, we are seeing top producers have this information at their fingertips real-time throughout the year. This should be your goal. I guarantee it will lead to better management and decision making. Another best practice we see paying big dividends is benchmarking. Compare your operation’s financial performance to others in the industry? At First Dakota National Bank, we have a program called the Ag Dashboard Report.”
2) Write down their marketing plans. “Great marketers have their plans defined and in writing,” Franzen says. “These plans address return on investment goals, which require detailed and accurate breakeven analysis. These plans typically set marketing goals based on price targets and timeframe targets. They factor in basis tracking and targets as well as forward pricing tools to be deployed. When it comes to marketing, emotion is not your friend. Don’t get caught up in trying to top the market or predict where the market is going. No one knows -- and if they say they do, watch your checkbook. Set targets for acceptable returns and take action when the market gives you the opportunity. I truly believe marketing skills will be the difference in performance as we go forward.”
3) Don’t cut inputs that will reduce yields. “The vast majority of agriculture is good at this. However, it is a must. Don’t get caught in the trap of making expense cuts that reduce production yield levels. This mistake is made often when prices decline,” Franzen says.
4) Only buy technology that has a good return on investment. “Too often we see producers purchasing new technology because it is cool or because their neighbor has it. Technology should be acquired because it pays for itself in a reasonable period of time. Oftentimes, technology should pay for itself over a 3 to 5 year period or it becomes obsolete.”
5) Set goals. “Goal setting is key to success. It has proven true over and over, if you set goals and hold yourself accountable you will perform at a higher level.”
6) Communicate well. “High functioning operators are strong communicators. They have defined meetings to communicate with stakeholders and make them a priority.”
7) Hire the right people. “It is a cliché, but it is so true: People make the difference. You must get the people part of your business right. Strong operations realize they need to provide careers, not just jobs. They understand the difference between management and leadership and gravitate to leadership as often as possible.”
8) Know how to leverage assets. “There are productive assets and nonproductive assets. Productive assets produce income and nonproductive assets do not. Strong operators leverage productive assets and are very careful not to tie-up capital with unnecessary, nonproductive assets. Some examples of nonproductive assets include: houses, shops, boats, motor homes, vacation homes, etc. “
9) Keep learning. “Agriculture is a rapidly changing business very dependent on science and technological practices. Our markets are impacted by many things that happen around the world. To stay competitive you must always challenge yourself to stay sharp. You should have a training and education plan for yourself and your team.”
10) Leverage big data. “There is so much data coming at producers these days. Top producers develop tools and systems to manage data real-time and leverage it to make better decisions. Keep it simple. Don’t get overwhelmed by all the information. Identify what is critical for your operation and track it.”
11) Want to be held accountable. “High performing producers recognize they don’t know it all. They also realize they can’t do everything themselves. They want other opinions and recommendations. They want others questioning their thoughts and decisions with the common goal of constant improvement.”
12) Use advisory and peer groups. “One of the most important best practices I see is the use of advisory groups and peer groups,” Franzen says. “Too often in agriculture we are so caught up in confidentiality that we don’t do this. That is a huge mistake. Surrounding yourself with others who can cover your weaknesses is a great practice. Peer groups can relate to your challenges and opportunities. Having a peer group that you trust and respect will make you better. Transparency by all is key to maximize effectiveness of advisory groups and peer groups. To drive home the point I’d like to share a true story. We have a client who has recently been diagnosed with terminal brain cancer. This producer has been a strong producer for years and has been a part of a peer group for a long time. Upon his diagnosis, he requested we engage our Keep Farmers Farming team to help him get his estate plan complete. We did. Then he shared a very powerful thing with me. At DakotaFest I asked him how he was doing. He stated he was doing well. He had peace of mind for two reasons. Our Keep Farmers Farming team had helped him get his estate plan in order. The operation will be transitioning to his son’s leadership. What he said next still gives me pause. He said the other reason he has peace of mind is the fact that when he is not around anymore to assist his son, he knows those members of his peer group will be. If that isn’t reason enough to have a peer group, I don’t know what is!”
Source: First Dakota National Bank