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- Surviving Tough Times Requires Business Sense
- By Greg Brown
Associate Editor
- Surviving tough times requires business sense and proper personal outlook, according to Alison DeMarree, a speaker at the Great Lakes Fruit, Vegetable & Farm Market Expo, held in Grand Rapids in early December.
“No matter how successful your business is right now, you should survey the apple industry today and what it will be in the future,” said DeMarree.
“The keys to success depend on both the financial aspects of your operation, including cash flow equity and profitability as well as your personal outlook,” she said. DeMarree is a Cornell area Extension coordinator and co-owner of DeMarree Fruit Farms Inc.
A member of Cornell’s Lake Ontario Fruit Team, specializing in business management, the speaker based her observations on experiences gained conducting the Annual Fruit Farm Business Summary. Working with fruit operations, the study analyzes investment, cost, production, income, labor use and debt management. She also conducts studies to determine the cost of replanting orchards, the cost of growing and harvesting various fruits and the cost of storage construction.
Business reality check
Today a reality check is required, DeMarree said. Human beings have a natural tendency if they are comfortable not to want to change.
Several industry changes that growers need to be aware of in the apple industry include:
• High density orchards are coming into production.
• Old reliable varieties are no longer in demand.
• Over production occurs.
• It is a global marketplace.
• The Food Quality Protection Act will force the removal of large trees due to expense and coverage problems.
• You have to reinvest to meet changing demand.
• Growers have little to no bargaining power with retailers.
“The state of the apple industry today requires some soul searching,” she said. “Growers need to ask themselves if theirs is a viable business and will it continue to be.” Personally, growers need to identify their goals and how they can move their business toward those goals.
While they are hard questions, sometimes growers need to ask:
• Should I work toward exiting the business?
• Who would likely buyers be for the business?
• What change is necessary to attract buyers?
But don’t give up prematurely. “Leave no stone unturned, because anything is possible when you have an open mind,” said DeMarree.
Growers cannot lose track of the financial tools necessary for survival. Cash in has to equal cash out. “A lot of businesses may be profitable, but if they don’t have the cash to do what is necessary when it is needed, they are in trouble,” said DeMarree.
Some steps to improving and protecting income include reducing receivables waiting time where possible, getting cash sales where possible, looking for higher priced markets, improving quality, purchasing crop insurance and being realistic about farm income per bin harvested. The key is to keep the cash flow active.
Ways to increase cash flow include:
• Selling non-critical assets.
• Renting orchards.
• Selling orchards, then renting back.
• Long term rental agreements.
• Logging woodlands.
• Borrowing money with long term loans when possible.
Do these things only if your business will end up being more competitive as a result of these steps, she said.
Cut costs where possible
Another important key to remaining viable is cutting costs where possible. Across the industry, labor is the number one expense, according to DeMarree. Growers could adopt a pay-by-piece policy, to get the most for their labor dollar.
When looking to cut costs, growers should examine reducing acreage of juice blocks, doing away with any block that is likely to be juiced due to a lack of market. “Look hard at your overhead costs, and ask yourself if they can be reduced,” said DeMarree.
Some costs should not be cut, because cutting some costs can be the beginning of the end. Don’t mess with your fertilizer, pruning, spraying or hand thinning expenses for this reason, she said.
Examine your equity
“The bottom line in borrowing is that you can’t borrow more than you are worth,” said DeMarree. Growers should be sure to re-examine their asset valuation. When looking for financing, make a list of the market value of their assets from their depreciation schedule. “Don’t forget anything. Include ladders, picking bags and tanks,” said DeMarree.
Debt and equity are areas where business owners need to be especially cautious. The overall goal should be to manage debt, said DeMarree. A grower should never increase their debt without good reason. One good reason to increase debt may be to get desirable, high-density plantings into production, or to vertically integrate the operation.
“Have a good relationship with your lender,” said DeMarree. Ways to build a good relationship include communicating with them on a regular basis, being prepared for meetings, being open to suggestions, and seeking advice and feedback on various scenarios and alternatives.
“Profitability is what allows for re-investment in the long run. Your business has to be profitable to survive,” said DeMarree.
Personal outlook
For a grower, managing their personal outlook is also a key to surviving tight times. But, how do growers stay positive when it appears that all the odds are stacked against them, DeMarree asked.
“One way to stay positive is to remember how much we take for granted,” said DeMarree. She suggested investigating books that expand perspective. In “Man’s Search for Meaning,” Victor Frankl writes about his survival in a concentration camp. In “Escape Routes,” Johann Christoph Arnold explores the roots of loneliness, frustration, alienation and despair and the keys needed to leave them behind.
While it may be hard in current market conditions, cultivating a positive attitude is worth the benefits.
• Keep a goal of always learning and growing.
• Consider life to be a journey.
• Practice being grateful.
• Notice what is right and good.
• Respect others.
Have a vision for the future in all areas of your life, including your business, your personal affairs and your children. Always set goals for the future. A good way to perpetuate the positive outlook is to be involved in the community outside of your business. “We are made to be part of a community, to participate in give and take,” said DeMarree.
The community can offer a positive support team. But growers would be wise to avoid the coffee shop mentality. “Give something back to the industry, even when there is nothing to gain,” said DeMarree.
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