The economic environment is chaotic, and volatility in extremes shows no signs of abating. Currently the agricultural economy has a split personality that causes human emotions to fluctuate wildly.

The grain and row crop sectors are in an extended downturn, experiencing suppressed prices, inflated costs and stubbornly elevated interest rates. Meanwhile, livestock and value-added businesses, specifically beef, are experiencing an economic cycle conducive to profits. Regardless of enterprise or geographical location, geopolitical shifts, weather, trade fortunes, currency valuation, societal drifts and consumer trends can alter outcomes in a New York minute.

The key to managing these cycles is managing the controllables and managing around the uncontrollables. You must be focused and deliberate in your business and personally, whether you are involved in a workout or refinance plan or a growth plan. This places a premium on business and life planning. However, I often see focus on executing a plan and monitoring the results to make timely adjustments is a missing piece of the plan.

What are the plays in my Planning Playbook that will position you for success regardless of the stage of your business or the cycle you and your business find yourselves in?

First and foremost, you must establish your identity. Some may be in survival mode, while others are in growth mode and some are in generational transition mode. What is your North Star and the core values of your business? Most importantly, each stakeholder should develop written goals, which less than 5% of Americans actually do. Within these goals, what are your business, family and personal aspirations? For more balance, add your mental, physical and spiritual goals. Putting your goals in writing, provides the focus necessary in an environment where breaking news, originating from many channels, can quickly cause you to lose focus.

Goals for those in down cycle could be breakeven, minimizing losses or drawing on working capital or equity. You need to know what is required to move toward profitability. Will it be an economic cycle change or management and business adjustments? Others in growth and transition need a disciplined profit plan that will require building working capital reserves and managing your level of debt if you are expanding.

Second, knowing your cost of production is not an option but a requirement. It is very important to calculate the cost of production for each enterprise as well.

Third is breakeven analysis. A successful former student indicated that he learned in my classes, if you sell above breakeven, then the odds of success will be in your favor.

Step four is the development of cash flow at least on a quarterly basis, but better yet, on a monthly basis, regardless of your revenue and cost streams.

Next, step five is to utilize financial sensitivity testing on price, production, costs, and interest rates to provide the guardrails of the business. Conduct a worst-case scenario with a backup plan. Also develop the best-case scenario as it can lead to your goal attainment. Remember your financial journey will not be linear, and it will often move in waves depending on the economic cycles.

Step six is the operational plan to back up your cash flow which is often overlooked. That is, what level of production, operations and human resources are needed to generate the cash flow? How does cash flow spread across the year – is it seasonal or consistent through each month?

Moving to step seven, what are the key financial metrics to determine your status?  At our creamery, we use the coverage ratio, working capital to expenses, debt to asset ratio and net income margin. Monitoring these monthly, quarterly, annually and year-over-year provides a context for objective trend analysis.

For step eight, any good plan contains a marketing plan. What actions do you have in place to take advantage of opportunities and also mitigate downside risks? This written plan can be very useful for both commodity and value-added businesses.

Step nine requires a risk management plan with insurance, compliance and standard operating procedures. This is often disregarded. This part of the process needs to be updated at least annually with a critical review by all stakeholders.

The final step or step ten in the planning process is the engagement of a formal or an informal advisory team. This could include a lender, crop or livestock consultant, and some peers. An advisory team will stimulate thinking and provide an outside perspective similar to the assistant coaches in the sky box in football.

Of course, my Planning Playbook is not all-inclusive and can vary depending upon the business or circumstances. Save this list and utilize it as a format during your planning later in the fall and winter. The key will be to develop a plan in writing and have a strategy to execute and monitor the plan to place the odds in your favor.

1. Identity & Written Goals
2. Cost of Production
3. Breakeven Analysis
4. Cash Flow Analysis
5. Financial Sensitivity Testing
6. Operational Plan
7. Monitor Key Financial Metrics
8. Marketing Plan
9. Risk Management Plan
10. Advisory Team