How To Make Business Profits
Last week I referred to loss making farming businesses and the human characteristics leading to these losses.
It's only fair that the focus this week should go on successful farmers and we look at what makes them tick. Over the course of 35 years I've had the pleasure of working with farming couples who have made sound profits most years and took notes of the characteristics that made them successful.
I found that they took their business seriously and had a plan for most issues and problems, usually in the form of a brief written plan.
They took the view that their cash flow was their lifeblood and took a real interest in where their sale products ended up even though their direct control of this was more than limited.
These couples were capable of self promotion but I often found it was quietly actioned and their advertising budget was low. They always projected a positive image – even in the down cycles.
Successful couples were acutely aware that they tended to underpay their top team employees and overpaid their bottom group but found the gap hard to get right. The invested in themselves and their team and didn't always act on the first bounce of a new idea or innovation but usually didn't wait for the third bounce either.
Their integrity, sincerity, business values and honesty were not for sale at any price. Sometimes losses were accepted as part of the plan.
Nor did they try to wear too many hats and involved the experts whenever required. Calculated risks were weighed up carefully, but they didn't back away if the proposal had an 80 per cent chance of success.
They tended to have a crystal clear vision of their plan. They had long found that without this vision they couldn't create it.
Their tendency was to focus on short to medium term goals rather than long term. Generally they found that agriculture was too volatile and too fragile to try and look too far ahead. They feel it only takes one weak link in their chain and things quickly come to a head.
Consistently good farmers believe in having at least 10 per cent of their gross farm income in financial reserves. Never-ending development, plant replacement and the odd business loss often eroded these reserves, but they didn't waver in holding back some of their earnings.
I found that they persisted when the going got tough and they didn't give up as long as they knew they were heading in the right direction. They expected to meet obstacles, to make a few wrong turns and to make a few poor decisions.
They take charge. They lead from the front both physically and financially and they have learnt that their horsepower will tend to be the horsepower of their team. A common trait was that they had a thick skin because in farming this is essential from time to time.
Unlike quite a number they don't dead cat bounce at the bottom of a down cycle. They want to recover and recover well. They have a good grip on their own numbers and their industry numbers, but don't make a meal of them. They know if they get knocked down that it is whether they get up and what they then do that matters.
They are well aware that they miss 100 per cent of the shots that they don't take. But they work on requiring an 80 per cent hit rate on the shots they do take. They don't want to wait for the future; they want to create it, waiting to see whether they have any money left at year end is not vaguely appealing to them.
Their imagination is like a high kite and they think well forward about where they would like to be but accept that all sorts of things such as people can disrupt the plan. They accept that sometimes their best successes come after some disappointment and bad decisions sharpen them up.
They have found that ordinary talent with extraordinary perseverance will usually carry the day. Furthermore, success tends to breed confidence.
The idea of someone else controlling their destiny is not a runner. They want to control it regardless of mistakes and wrong turns they may make. The best couples both feel it is not the size of the dog in the fight that matters; it is the size of the fight in the dog that will determine things. If they are going through hell then they keep going.
Many times they have found that life begins at the end of their comfort zone. Some opportunities might be missed and they know the clock can't be turned back but they can wind it up again. They find that no problem can withstand the power of sustained thinking.
They have long found that the darkest financial hour still only has 60 minutes. When their dreams turn to dust, they vacuum. When at first they don't succeed they then need to know if the loser gets anything. They don't wait for their boat to come in; they are prepared to swim out. They have known for a long time that life is not fair; it is just fairer than death.
They divide their difficulties into as many parts as feasible and then concentrate on the parts that really matter. Once they have established their key values and their business plan they then found they could make key decisions much better. That approach is no different to building a house without a foundation. Their direction early on is much more important than their speed.
Finding faults was important but finding a remedy and a solution was much more important. They found that business procrastination generally wasted more profits than it made. Perfection was good to read about but excellence was what they made decisions on.
Lastly they found that clothes maketh the man; naked men have had little or no effect on society.
Pita Alexander is an accountancy and agribusiness director at Alexanders.
22 February 2017