| Published: January 16, 2020

Profit in Chaos

Dr. David Kohl, Professor Emeritus Agricultural and Applied Economics, Virginia Tech University

The title of this article comes from a recent Farm Credit University face-to-face session for the online Commercial Ag Lender course. This group of students represented employees from various Farm Credit associations and banks throughout the United States. One theme the class wanted to address was how can an agricultural business thrive in chaos?

The first step is preparation and focus. In my interactions with leading legendary coach John Wooden of UCLA, preparation and focus were prime strategies that he had for success when he won 10 national basketball championships. He emphasized to his teams that they would prepare the best they could with a focus on fundamentals and follow-up with the basics. In this strategy, the key was to maintain focus while limiting outside distractions. This is analogous to agriculture with all of the breaking news and tweets concerning trade and tariffs. Following one’s strategies and knowing when to take a profit or minimize losses will be key to long-term success.

Another key component that Coach Wooden stressed was the execution of fundamentals. When operating a business, developing a business plan with financial, marketing and operational strategies is an important, fundamental step. Then, one must take the business plan from concept to action and accept both the positive and negative consequences. With any good coach or business, measuring and monitoring outcomes is important to tweak the game plan for the next opportunity or the next year.

Those who thrive amid chaos often have strong financial statements, particularly on the top half of the balance sheet. Working capital and the ability to quickly convert assets to cash to garner opportunities when others are not in a position to do so provide a competitive advantage. Being able to negotiate cash discounts is possible only if adequate liquidity is maintained. Strong working capital and liquidity also allow you to market on your terms to meet profit and cash flow expectations.

Finally, develop a strong team culture where individual goals sometimes are modified for the betterment of the team's overall success. In this scenario, some team members will have to check their egos at the door, listen rather than talk, and be fully committed to the overall team success.

This chaos we are experiencing is only just beginning and will be with agriculture throughout the next decade. Staying ahead of chaos with a well-thought-out plan, execution and monitoring with flexibility in the financials combined with a team concept will be imperative.

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