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Family Business Matters 04/26 06:45


Family Business Matters 04/26 06:45

No Man's Land for Your Farm

Almost every expansion of acreage, new business enterprise or new investment
has challenges and requires more management skills and knowledge. Your
intuition is valuable, but so is the advice and counsel of people who have been
through similar trials.

By Lance Woodbury
DTN Farm Business Adviser

In a recent peer-group meeting, the owner of a medium-sized manufacturing
business described the struggles in growing his enterprise for our farm
audience. He referenced Doug Tatum's book "No Man's Land" as a helpful
resource, pointing out that, as the business grew, he needed a guide to help
him navigate the challenges for which he had no experience -- the "no man's
land" between a comfortable today and a successful tomorrow.

The speaker's points were relevant for many farm and ranch family
businesses, which also struggle with the challenges brought on by growth.

Almost every expansion of acreage, every new business enterprise or every
new financial investment contains challenges and creates the need for improving
management skills and knowledge. Your intuition is valuable, but so is the
advice and counsel of people who have been through similar trials. Tatum
divides the hurdles we face into four categories: your market, your management,
your model and your money.

YOUR MARKET

Even though many farm and ranch businesses produce a commodity and may not
directly know the final consumer, they still must answer to a customer, be it a
broker, buyer or even landowner. Tatum points out that as you grow, you need to
respond to customer needs and replicate your skills and develop new processes
so "the value born out of a set of skills and passions held originally by the
entrepreneur [is] ultimately captured by the business itself."

Your grain marketing process or your relationships with landowners,
livestock or grain buyers or lenders need to be formalized and spread to others
so that you are not the bottleneck, and the business can quickly respond.

YOUR MANAGEMENT

Some of the people who helped you achieve your current level of success will
not make the transition to the next stage of your business. You also need new
skills to help navigate some of the difficulties that come with growth. I've
seen family farms and ranches hire new operations managers, agronomists or
human resource managers -- often from outside the family -- to bring the skills
necessary for the next stage of growth.

YOUR MODEL

As your business grows, you must stay profitable. We've all seen businesses
in our community that grew but couldn't manage their costs and went bankrupt.
In moving your business to the next level, what is the optimal equipment
investment? How many acres or animals are needed to absorb your new overhead,
labor or equipment structure? When does it make sense to outsource some jobs?
Tatum emphasizes the need for regular financial and operational reports so that
you regain the "sense of control" that so often feels lost during growth.

YOUR MONEY

Tatum's fourth area revolves around money, and his primary point is that
"growth itself generates the need for capital," because the business requires
financial investment in advance of revenue. This is particularly true in
agriculture businesses, where the return of a yearlong (or multiple-year)
investment is realized at the point of harvest. A growing agriculture business
involves rent, inputs, land improvements, buildings, bins or baggers, trucks,
supplies, equipment and labor -- all needed in advance of selling the crop. If
your business is growing, then understanding, finding and managing capital is a
critical skill.

The journey of growing a farm or ranch business can be both exciting and
scary. You will undoubtedly encounter terrain you haven't seen. In Tatum's
words, having "a map, a high place from which to orient yourself, and
navigational rules" can mean the difference between failure and success in no
man's land.

**

Editor's Note: Write Lance Woodbury at Family Business Matters, 2204
Lakeshore Dr., Suite 415, Birmingham, AL 35209, or email lance@agprogress.com


(ES/AG)

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