One of the major trends I observe when engaging with the agriculture industry is consolidation at an accelerated rate. The number of owners of machinery dealerships and seed companies is declining. There are fewer processors and major food firms are vertically integrating certain sectors. With this trend, how can a smaller or midsize business survive and thrive in an environment where the tide is going in the opposite direction? This was a question asked by a Canadian broadcaster during a recent interview. Let's examine a few tips.
First, the business must align with its strategic strengths and core competencies. This could be an ideal location, superior land, quality livestock or alignment to meet a certain market niche. The business’s strength may also be innovation or the ability to quickly adapt given market conditions.
In my travels, I have noticed some small and midsize businesses maintain a competitive edge by having dimensional revenue streams both inside and outside of agriculture that are consistent with their passion, skills and resources.
Some producers who operate smaller businesses are fulfilled by achieving “base hit” profits rather than “swinging for the fences” or going for the proverbial home run. They exhibit an inner peace that the bigger operations sometimes do not have.
Turning to financials, effective small-business owners have someone around who gives them good advice with the books. A focus on efficiency and line-by-line expense management is key. Proactive producers manage not only the business financials but also place a high priority on the household financials. The financials are monitored and they hold themselves accountable with high levels of self-discipline.
Many of the younger small and midsize producers are entrepreneurial, but still very focused and prioritize their business, personal and family goals.
This group understands the value of profit and cash flow management. They discipline themselves to maintain working capital with quick access to cash. Good financial management with adequate liquidity allows them to benefit from taking cash discounts and negotiating purchases. They are not afraid to collaborate with their peers to use the power of numbers to gain the benefits that larger producers garner.
While the future appears to be driven by consolidation, there is still a place at the opposite end of the spectrum where one size does not fit all.
Do not be surprised when larger operations come under strong scrutiny by consumers, politicians and the general public over the next five years. This fear of probing eyes may be something that keeps a large-business owner awake at night.
Dr. Kohl is Professor Emeritus of Agricultural Finance and Small Business Management and Entrepreneurship in the Department of Agricultural and Applied Economics at Virginia Polytechnic Institute and State University. Dr. Kohl has traveled over 8 million miles throughout his professional career and has conducted more than 6,000 workshops and seminars for agricultural groups such as bankers, Farm Credit, FSA, and regulators, as well as producer and agribusiness groups. He has published four books and over 1,300 articles on financial and business-related topics in journals, extension, and other popular publications.