By John Ellsworth
In his recent book, “The Noticer,” author Andy Andrews tells the story of his main character Jones and his response to a question that was posed to him about what his “point” really was. He replied, “Well, I’m not really to the point yet, but if I had to make one now, it’d be for you to understand that all people – all lives – are either in a crisis, coming out of a crisis, or headed for a crisis.” I know what you’re thinking. Oh, thanks, John. I’m in a crisis, so now what can I do?
Know where you’re at
The key here is to know which stage you are in because only then will you know which option will be the best one for you to select. Think about the current challenges of the dairy industry. Where do you fall on the spectrum of crisis? Please allow me to provide you with some perspective.
1. “In a Crisis” – An example of this is when your accounts payable continue to grow, your lines of credit are fully loaned out, and your bank has decided that they are ready to cut their losses and, thus, are not willing to loan you any more funds.
This really is a crisis, because you are locked up on what you can do. I recently had a client in a situation similar to this. Fortunately, we were able to brainstorm with the bank and come up with a potential solution by borrowing against some “lent collateral” from another family member. This added some debt, but allowed us to work through the immediate cash crunch and get back on track with vendors. Their new goal is to now reduce debt as quickly as possible during the next five years…
Into a new category
2. “Coming out of a Crisis” – I suppose that the outcome of the prior example converted my client into this new category. However, I believe a better example would be a client who, even prior to this downturn, had some cash flow issues, especially when we hit the high feed prices of 2008. My first observation when I began working with them was that their debt structure had been “put together by a committee.”
They had plenty of debt on their short term and intermediate term assets but very little on their real estate. By tapping into the equity of their real estate and setting up a new long term real estate loan, they have been able to cash flow relatively well in 2009. Yet, even as they move forward and out of their crisis, they have changed their thinking for the better.
Disaster agenda time
3. “Headed for a Crisis” – The third category is my ongoing justification for the development of what I call a “Disaster Agenda.”
As an ongoing exercise, I work with clients to develop this regularly. I ask them to not only set their top five goals for the next twelve months, but also to list the five worst items that could happen in the same time period.
The purpose of this exercise is not to dwell on the negative aspects of your business but rather to start thinking about:
a. What could potentially go sideways?
b. Where you might want to make improvements in your operation?
c. What are my potential areas in which I might get blindsided by fast changes in the industry? Some examples include your bank exiting the dairy industry, your milk buyer going bankrupt, a key employee leaving or the death of a key person in your family operation.
Key to success
The key to successfully moving through this thought process is to cover as many potential areas of exposure as possible, and then answer this question. If this event happened, what would my best response be?
You’ll find that your thinking will be enhanced if you complete this process prior to the potential event actually occurring. Additionally, thinking this through in advance will also help prepare you for other similar events that could occur.
For example, I had a client who was concerned about his bank possibly leaving the area of dairy financing. Thus, we thought through what we would do if that actually happened. His bank continued to finance the dairy industry for many more years. However, his going out and meeting other lenders prepared him for what did occur. His feed company was sold to a conglomerate corporation. When that happened, he simply used the same process to develop relationships with two other feed suppliers. He had already practiced this process in the banking world…
Be open to change
Please give some thought to where your operation is at present. As you go through this process, be open to change, both within yourself and in the way you run you business. I think you’ll be glad you did!
■ John Ellsworth of Modesto, Calif., is a consultant with the financial and strategic consulting firm Success Strategies. He can be reached at 209-988-8960, or by e-mail: email@example.com.