By Farm Credit East Chief Business Officers James Putnam and Mike Reynolds
Northeast farm, forest products and fishing businesses have invested fast and furious in technology and productive assets over the past decade. We’ve observed, and often had the opportunity to finance major investments in new and updated machinery, new buildings and structures, new technology, working capital, and additional productive land. All of this bodes well for the future of your businesses. It positions you to remain competitive and profitable, while attracting the next generation of management, and eventually ownership, to engage in your business.
Has your capability as a business management team kept pace with all of this new investment in productive assets? Or, are you feeling you have a tiger by the tail in terms of the added complexity, scale and demands of successfully leading your business? Think back over the past decade or so, to this time in 2008:
- How much more output is your business producing, whether it is bushels, trays, cwt., barrels, cords, board feet, pounds, tons or other relevant unit of measure?
- How much more exacting are the quality standards required by your customers or buyers? The hurdle for marketable quality has been rising almost constantly in all the industries we serve, and shows no signs of slowing down.
- How about the materials handling and logistics of your operation — moving raw materials in and finished products and by-products out? Today, many of you are either operating or hiring substantial over-the-road trucking as a critical element of your business, for example.
- How about payroll and benefits? Has this gotten any simpler?
- Or gross dollars flowing out of your checkbook for purchase of inputs and services, and deposits back in as product is sold?
- What about regulatory requirements? Whether it’s your income, payroll and sales tax liabilities, CAFO, FSMA or Fishery Management Council regulations, no one is going to contend that has gotten any easier! Our states and federal governments, no matter what the rhetoric, keep adding to the list while rarely taking anything away.
- How much more information is available to you about your business? And is it being used in a systematic and purposeful way, or is it “information overload?”
Most of this added complexity is on you and perhaps one or two other key senior people within your business. The size and margins of most natural resource-based businesses does not allow for a multi-disciplinary team of specialists who can stay on top of these issues. For example, you probably do not have a senior vice president of human resources or in-house corporate counsel. Some Northeast natural resource businesses have done well in upgrading their management systems to maintain balance with greatly increased complexity and scale. Unfortunately, many others are in catch-up mode.
Often when times are good and markets strong, these challenges are not particularly apparent. Good times can lull any of us into complacency — that’s human nature! Inadequate management systems can quickly become painful, however, when profitability goes south. This has occurred in the dairy and cash crop industries over the past couple of years, and in the green and forest products industries in 2008-09. Common challenges are:
- Cash flow and profitability swing dramatically negative, but the business owners are slow to grasp the magnitude of this, or really know what to do about it. Necessary adjustments and perhaps bold actions are unfortunately delayed, and the proverbial dark hole gets even deeper.
- Accurate financial information is missing in action until many months after year-end. As a result, income tax management, filing of timely tax returns, benchmarking/budgeting, and credit renewals are delayed far too long.
- Critical strategic decisions get put off. There are too many other fires to fight, so important issues like family succession and/or updating wills are deferred.
- Stress on key family business leaders increases, sometimes leading to tension within the team. “I know I’m responsible for keeping the financial records up to date, but I am three months behind because of the terrible weather during crop season…”
- Employee hiring, turnover, productivity, attention to key details and other issues are allowed to fester because management is spread too thin and/or perhaps too stressed.
The Right Command and Control Capability?
Command and Control is a military term not commonly used in the business world. As a retired Marine Corps Major (Jim’s son!) described it: “Command and control is the means by which a commander recognizes what needs to be done and sees to it that appropriate actions are taken.”
Substitute the word(s) “management team or president or general manager for “commander,” and this definition fits remarkably well for most of the businesses with whom we work. As your businesses have grown in size and complexity, it is understandable how “command and control” would have lagged behind.
Command and Control (“C&C”) Checklist
Certainly there is no “one size fits all” command and control system for farm and natural resource-based businesses. We encourage you to think about:
Timely, accurate financial information that enables the management team to:
- understand monthly/annual performance on an ongoing basis, and
- identify both opportunities and problems as they arise, and
- develop timely action plans in response, and
- track and assess the success of these action plans.
- Integral to actionable financial information is a laser focus on a few key financial metrics that are the true drivers of your business. Yes, you need full financial statements for other business reasons, but not for purposes of command and control.
The capability to integrate business information from throughout your business operations – production, marketing, retail front-end, financial and the other information being generated by the technology in which you have invested. While this has long been an element of Farm Credit East’s CenterPoint® Accounting software, Success Strategies Benchmarks and Profit Analyzer services, technology enabling this integration is developing by leaps and bounds.
Clearly identified management accountability, tracking of key business results to those directly responsible, periodic measurement of accountability to actual results, and reinforcement through compensation (including perhaps bonus/gain sharing programs) are part of the foundation of effective C&C. This structured approach to human resource management is critical to success. If disappointing business outcomes result in finger pointing within your team or “not in my job description,” then C&C is inadequate. If it is all on you as leader, then you are destined to have key performance issues get away from you, if not becoming personally “burned out” someday.
Regular, structured communication within your management team focused on business results, responding to opportunities, and resolution of problems and action plans. A blessing and a curse of family and small businesses is that we sometimes know each other too well! We have to speak to each other frequently to get things done and we are frequently in each other’s space. This is all necessary and wonderful, but success requires regular communication focused on business results and problem-solving in a complicated world!
Risk management focus and capability. At first, risk management may seem out of place in our discussion of business C&C. Think back to our military analogy, however. The commander relies on “intel” from a variety of sources to anticipate and overcome adversity in order to accomplish their mission. In farming and natural resource-based businesses, we plan and hope for “normal.” But, we are always aware that a wide range of natural, market and institutional forces may completely disrupt “normal” thereby impacting our business results. Risk management capability implies that we:
- understand the key risks to our business
- assess their potential impact
- whenever possible, have a contingency plan in place
- use risk mitigation tools (e.g., crop insurance, business interruption insurance, forward contracting, margin hedging, maintaining cash and credit reserves, etc.)
Ask Farm Credit East’s Team to Help!
The Farm Credit East team can help you develop Command and Control capability for your business — please ask your Farm Credit East representative. For nearly 50 years we have been in the business of helping our customers become better business managers. Our goal, then and now, has always been to assist Northeast producers in being more profitable, better managing risk and transitioning their businesses to the next generation.
Along the way, we hope there has been substantial value in our customers’ peace of mind knowing that Farm Credit’s experts are part of their team.
Our business consultants and other providers have lots to offer in helping you take command and control to a higher level:
- Red Wing CenterPoint® accounting software
- On-Farm and at-Farm Credit accounting services
- Success Strategies Benchmarking for dairy, ag retail, green industry and winery businesses
- Profit Analyzer service: Monthly profitability reports and consultant-facilitated profit meetings with your management team
- GenerationNext management development seminars and customer on-farm training
- And more!
All of us at Farm Credit East are incredibly proud of your business accomplishments. As you have grown in business management capability, you have enabled us to grow with you. Our team is eager to assist you in taking business management — command and control — to the next level in 2018.