Klinefelter: By the Numbers

By Danny Klinefelter
DTN Farm Business Adviser

This is the second and final of a two-part series of quotes from Pita Alexander, the best known and most respected farm accountant/consultant in New Zealand. It's a country with little government support for agriculture and an intense survival-of-the-fittest ethic among farm operators. I encourage you to think about how his observations might apply to you.

1. I find with change that some farming couples cope well and some don't. Standing back a bit, I find that couples struggle much more with the "why to change" issues than the "how to change" issues. The "how to change" issues are often reasonably clear-cut and well-trodden, but the "why to change" often involves a whole lot of in-head type issues. Good farm advisers can really play a role here because a procrastination with the "why to change" gets harder and harder over time.

2. Nothing but nothing manages themselves as well as losses. Losses do better if you keep out of their way. Don't mess around with losses, treat them with respect, then kill them.

3. You must constantly reinvest:

--In your business

--In your team

--In your knowledge

--In your family

--In your community

--In your professional and peer advisers

--With involved third parties

--And last but not least in yourself

4. What are some characteristics of the top 10% group? There are various attributes, but outside of high ability, several would be planning, goal setting, patience and discipline. Some would have their planning and goal setting on the back of a match box, or diary or in the back of their mind rather than on a computer, but the key is, it is done.

5. Are you running the farm or is the farm running you? Your answer will tend to determine where you will be in 10 years' time. You must take control. Without control, you don't have a business, what you have is an expensive, frustrating, time-consuming hobby.

6. Attack the problem before the problem attacks you. A stitch in time saves a lot more than nine, and in the same way, a bird in the hand is worth about 10 birds in the bush. It is all about breaking the problem down into manageable pieces and then crushing it. In my trouble-shooting role, I often saw situations when the signals were coming through loud and clear years earlier when it was a small problem but nobody picked up, or wanted to pick up the signals, and the problem became mountain size and swamped them. Don't wait for a major problem to come down your driveway.

7. Don't live in the past -- you have already been there. Certainly learn from it and what worked well then may still work well today, but don't get black and white about it. It was President Abraham Lincoln who said, "What I said yesterday may not be correct tomorrow." He went on to say that if he couldn't cope with changing his views with changing information, he was no use to the country.

8. I believe we are going to see a continuation of the polarization going on between the top and bottom business quartile groups in economic terms. Get yourself in the right group and dig in. In 10 years' time in New Zealand there will be fewer farmers, fewer farm bankers and fewer farm accountants, but all there will have a bigger cake.

9. The top group has a business plan, and plan ahead. The bottom group tends to be passive reactors to events -- in some cases quite good passive reactors, but it is not a business attribute and sooner or later they get swamped. About 15% of our clients would be back on the ropes quite quickly with a major adverse climatic or adverse price received scenario. They have no margin for error or financial buffer whatsoever. By failing to plan, they are effectively planning to fail. None of this is new technology: It wasn't raining when Noah was building the Ark.

10. Some people only see the light when they feel the heat. Maybe all of us are guilty to some degree here. The message, though, is not to move so slowly that your profits are subsidizing your procrastination. I have often said that one's timing in many of life's actions is almost everything. The only difference between our top 10% group and the next group down is their timing.

11. People prefer to stay with problems they understand rather than look for solutions they are uncomfortable with -- this is almost a natural reaction. The message is to never get comfortable with problems because the next stage is you start to accept them. It is only another stage or so and you start accepting losses.

12. Just putting in the time is not nearly enough. It is not what time you put in, it was what you put into the time that counts. For example, everybody has experience but not everyone develops expertise. Either you go through an experience or you grow though an experience.

13. The top quartile in every business sector tends to walk the talk, but the bottom quartile in every business sector tends to simply talk the talk. As accountants we see this all the time. Both groups, though, are people, both have families and in many ways both get the same opportunities, but they are in different worlds.

14. Up every back road in New Zealand there are farming couples out-performing other farming couples by 50%. Usually it is not in one area of business, it is more likely to be in about 6-8 minor areas that add up to a 50% increase. This won't change -- it is democracy working.

15. Sometimes the best farm succession is no succession. Think about this comment before you discard it out of hand, because I am deadly serious. There are horses for courses, but some horses don't like the courses and some courses don't like the horses. Every farming family will have different feelings on these sorts of issues but make sure you are approaching the subject with light not heat, rationale not emotion and timing not tradition.

16. The two most important words in any planned major expansion are "what if." What if there is a major price drop, what if your production targets are not reached, what if a combination of these two comes about it. The time to look at the worst case scenario is well before the event, not with the event all around you. Plan B is all about minimizing losses.

17. Where do you want to be in 10 years' time? What's the plan to get there? It is just so noticeable how the top operators in every sector are pre-occupied with the future, whereas the bottom operators in every sector are pre-occupied with the past. It is very true that the top operators enjoy farming whereas the bottom operators endure farming.

18. Your business expertise will probably be more important than your scale -- top management is the key to survival. Sharpen your management skills up at every opportunity. If you have good management skills, then you will have the ability to make the most out of more scale or intensifying the scale you already have, or both. I have learned that in almost any business the type of person driving the business is every bit as important as the type of production systems the business has.

19. When your farm budget for the coming year shows a deficit the first time up, the worst thing you can do is accept it as is. Leave it for a few hours or a few days, then come back at it fighting. In some years you may not be able to avoid a deficit, but focus on it ruthlessly. The worst thing you can do early on is accept a significant cash farm deficit -- over the years I have often found that accepting it is a key stage in the deficit actually crystallizing.

20. Create vision and share it with your team. If you don't have a vision for the business, then what you have is an expensive hobby. Never forget that the difference between profits and losses is sometimes only minutes and the difference between big profits and big losses is sometimes only hours. If your mission statement doesn't talk about strong profits, then don't bother to have a mission statement.

EDITOR'S NOTE: Danny Klinefelter is a professor and extension economist with Texas AgriLIFE Extension and Texas A&M University where he teaches a beginning farmer program. He is also the founder of a mid-career management course for executive farmers called TEPAP. Hear Klinefelter and other finance experts coach farm beginners at a special DTN University course in Chicago Dec. 7, "Risk Management for Rookies." Go to www.dtnagsummit for details.

Danny Klinefelter can be reached at Talk@dtn.com

(MZT/AG)

Copyright 2014 DTN/The Progressive Farmer. All rights reserved.