The Ag Globe TrotterDr. Dave M. Kohl
Welcome to the weekly edition of The Ag Globe Trotter by Dr. Dave Kohl.
You are probably wondering if this is a flashback to the movie or the real thing in Punxsutawney, Pennsylvania. I have had the pleasure of attending a Groundhog Day Celebration, which was a memorable event that many of the other attendees missed due to “excessive barley utilization” and other indulgences during the festivities. As a post-Groundhog Day activity, I challenge you to complete the following assignment to put you in an executive mindset to manage profits, regardless of the size or enterprise of your business.
Outline your goals
The first step is to write down your business, family and personal goals. Outlining your goals provides a “North Star” to navigate and focus business objectives. On the personal side, outline your mental, physical and spiritual goals. This provides balance to navigate both business and personal success, and sustainability.
Balance sheet and inventory
When I was a teenager, my New Year’s Eve ritual was babysitting my brother and sister-in-law’s children while I developed an updated balance sheet and inventory for the family dairy farm business (before I was old enough to go out on the town). This was a very useful endeavor for my parents! They would often use these statements to take to their lender. Mr. Greene, my vocational agriculture teacher and FFA advisor, would allow five points of extra credit if we could get our parents to provide debt levels. Over the years, we could observe the financial trends, both positive and negative. For example, the cooperative milk plant filing bankruptcy in my junior year set my parent’s net worth back. Whether it is a business or personal household, accurate balance sheets are critical as a guide for equity, debt and financial liquidity.
Projected cash flow
A projected cash flow statement with financial sensitivity provides guardrails for your business. The first year will be the most difficult because of the lack of data to make assumptions. However, based on experience, one can zero in on revenue and expense trends which bring reality to the estimate. Within this cash flow, outline your capital expenditure needs and wants. Be sure to add 25% for unexpected capital expenditures in case of unforeseen circumstances.
Many lenders and businesspeople are completing the business IQ assessment that my team and I have developed. The assessment has 15 questions regarding the basics of business. It covers cost of production to goal setting, longer-term transition planning, and your overall attitude, which are very critical to your financial bottom-line success. Once completed, you can identify three things you want to continue doing and three things you want to improve.
Will this assignment make you successful? No, success requires execution, monitoring, and commitment throughout the year. However, this post-Groundhog Day assignment can place the business odds in your favor as spring awaits us, hopefully no more than six weeks ahead of us if the tradition is correct.
Dr. Kohl is Professor Emeritus of Agricultural Finance and Small Business Management and Entrepreneurship in the Department of Agricultural and Applied Economics at Virginia Polytechnic Institute and State University. Dr. Kohl has traveled over 8 million miles throughout his professional career and has conducted more than 6,000 workshops and seminars for agricultural groups such as bankers, Farm Credit, FSA and regulators, as well as producer and agribusiness groups. He has published four books and over 1,300 articles on financial and business-related topics in journals, extension and other popular publications.
© AgWest Farm Credit 2023
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