David came home to the ranch sooner than he anticipated. He was working at a different operation in another state when his dad got hurt badly in a ranch accident. David chose to leave that position to come home so he could help after the accident. Following the accident the family ranch went through some tough times. Market drops, droughts and digging out from a burden of debt took its toll. David led the ranch through this, by perseverance and hard work. He cut costs as far as he could, went without equipment upgrades, and took on some side jobs. During this time he also got married and raised a family. Now in his mid 40’s he’s got more experience than most his age.
His approach that got him through the trials and tribulations of taking over the ranch from his dad, may not work in the future. Putting his head down and getting to work may not be the right strategy for the next hard time. Now they have added another family to the payroll of the ranch. Along with other overheads that have crept in, it now takes 3x the money going out just to keep the basics going. David knows that these periods of high prices are only short term but he wants to fix it now so that when prices moderate the ranch will still be in the black.
Sometimes we are our own worst enemy. The solution that helped us get through the last situation may not be the solution that gets us through this one. Actually it might make the situation worse. When confronting a new situation that you find yourself in, before just doing what you did last time ask yourself: Are the fundamentals the same? Have price relationships changed? Do I have the same level of tolerance for a major wreck?
Through the Ranching for Profit School and Executive Link, we get to work with hundreds of amazing people engaged in the business of agriculture each year. Many of these people have themselves, built or grown an amazing asset base from following a recipe. Often that recipe is founded on a certain enterprise that the owner is deeply connected to. Maybe the recipe is around hard work, frugalness, or complete aversion to debt.
Many of the economic and financial fundamentals of agriculture are undergoing a massive shift. Just to name a few, the price of land, price of capital, price of labor, and the price of machinery have all drastically changed when tied back to the value of ag products we produce.
The same approach that has worked for the last few decades is not likely to work in the next few decades. It might be time for you to challenge some of your assumptions about the fundamentals your business is based on. Let’s see how it works for David.
David had never really understood the financial side of his business. He was always so busy getting everything done that needed to be done that he never made it a priority. Sure, he met with the accountant around tax time. The banker always seemed willing to renew his operating loan and would even approve a new loan when he needed a major purchase. But David didn’t really understand where he was in the big picture. He needed to invest in himself, get away from the home place for a while and be around other leaders of ag businesses that are focused on moving forward.
Once he took the step to get away so he could focus on the financial side of his business, he finally understood what his numbers mean. He now knows how to project profit and loss by enterprise a year in advance. He knows how to lay his profit and loss statement along with his balance sheet side by side to calculate key ratios so he can identify the health of this business in several key areas. He knows when it makes sense to borrow money for things to improve the business and how to identify purchases that might be foolish. Most importantly, David has changed his mind set about his key role in the business. He used to see his role as primarily working “in” the business. Now he knows, his primary role is to work “on” the business.
It is key to remind ourselves that the thoughts and actions we have taken in the past (which might have led to success), won’t necessarily get us where we want to go now. We need to be flexible and open to change. As Will Rogers said, “When you’re through learning you’re through”. How are you improving yourself to make better decisions in your operation? Perhaps we can be a part of that journey, reach out and let us know how we can help.
