6 more secrets of the best managers - Part two in a series

6 more secrets of the best managers - Part two in a series

Boom or bust, here is how top farm managers build a better (and more profitable) business.

In part one of this series we shared ideas from some of the leading farm and business gurus in our ongoing effort to help you sort through your toughest business challenges. Watch for more secrets coming up in this series.

“I’m a firm believer in using assets for multiple ventures and keeping people fully employed in off-peak seasons,” says Pete Clark (r), with son Jake, of Eagle, MI. “If you have a grain truck, you might be able to custom haul grain, too. These added ventures don’t need to start out big, but if you manage well, in a few years they will grow and multiply.”

1. Pay attention to priorities. The great business guru Stephen Covey had a rule of thumb: do first things first. 20% of what you do accounts for 80% of your results. Figure out what is urgent - that you need to do - and give the other stuff to someone else. The better operators know how to get management expertise from other sources if needed. It's not just setting priorities; it's prioritizing your priorities. “Most people’s long term objectives are never completed because they do second things first,” says Texas A&M economist Danny Klinefelter.

2. Increase your asset utilization (asset turnover).

There are two fundamental metrics any business person should know: Earns and turns. Earns are operating profit margins, margins on sales; turns are asset utilization – how many dollars of revenue you generate from your assets. Farmers bought a lot of new iron during the recent boom; now it’s time to evaluate turnover on those assets. Having machinery sitting around not doing anything results in a lower asset utilization number. Do something with it – say, start an add-on complimentary business, use it in custom farming - or get rid of it. Look at operating leases as a way to increase asset turnover. Focus on better work flow scheduling – figuring out where to have equipment at key times, even if it’s a 24/7 schedule. You can do this with enough organization skill and perhaps some cloud-based management tools, too.

3. Open up with each other.

Multi-generation farms need to hold family business meetings, but the biggest problem is that most businesses feel hermetically sealed; there’s a lack of open, transparent communication. Senior managers find it easiest to be tight-lipped, or worse, they just give orders (Son: “Why am I doing this?” Dad: “Because I told you to.”) Business guru Peter Drucker says 60% of business problems are due to lack of communication. You want shared vision and a sense of ownership among the team? You want to figure out where the business is headed and how to ‘get there’? Start by opening up. Don’t make people guess where the business is going – everyone should know. 

4. Emphasize execution.

Low cost farmers produce in a systematic way, starting with Standard Operating Procedures. Each SOP explains a specific step in how your business should be run. SOPs create expectations and make employees accountable for actions. They should be written so that you can expand or change them as situations change. That's why integrated pork producers have succeeded -- they have a very specific list of activities and schedules integrated into each SOP.

5. Consider strategic alliances and alternative farm business models.

Yeah, another one that is way different than what your dad did. Why? To capture economies of scale, reduce costs, improve asset utilization, access greater technical expertise, obtain market access – or all of the above. To be successful now you may need to become more interdependent. There are many ways to achieve economies of scale beyond buying more of an asset – pool buying, pool selling, joint ventures, equipment sharing, forming a closed co-op, collaborative arrangements or mergers, to name a few options. You say you hate to market crops? Partner with someone who is great at marketing while you manage production – now you’ve shored up one of your weaknesses.

6. Cut fixed costs with shared equipment.

Many farmers make this work and cut costs dramatically. Others won’t share because they worry about timeliness at key planting or harvest times. You won’t have that concern if the equipment comes from a different growing region – say, a Midwestern corn grower working with a Montana wheat producer. "Leasing and sharing is how the world works," says Purdue Ag Economist Mike Boehlje. “Sixty-five percent of the rolling stock – railroads, trucks, airlines – are leased in this country. It's a standard way of doing business.”

Next: focus on financial tips to make your business sound

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