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Expect a profit

08/19/2013 @ 9:03am

Improving profitability could be as simple as changing expectations. In short, expecting a year-end profit is the first step in achieving it.

This mind-over-matter approach draws raised eyebrows from Roland Kroos’ listeners. Kroos, a longtime holistic management certified educator and consultant from Bozeman, Montana, has seen farmers and ranchers come from the brink of bankruptcy to profitability by letting management practices flow from changed expectations.

“The first step, of course, is making sure the products you produce are indeed marketable and stand a good chance of being profitable,” he says. “Then, despite variances in price and weather, take responsibility for profitability and resist the temptation to let cost expenditures rise to the expected level of production.”

Letting costs cancel out income is the core cause of unprofitability, claims Kroos. He maintains that it figures more strongly than price or weather in determining year-end profit.

Yet the tendency to overspend is deeply entrenched in human nature, he says. It harks back to the very origins of business transactions. As a teaching tool, he cites a book titled The Richest Man in Babylon. The author uses historical documents to describe the business foibles of camel trading in 300 B.C.

Spending to the level of production in a year when camel production unexpectedly drops puts the trader’s business in a downward financial spiral from which he can barely recover.

“This camel trader started to barter camels that hadn’t been born yet,” says Kroos. “Not that different from today when ranchers are expecting X number of calves to be born or when farmers are anticipating producing X number of bushels of grain.”

This pattern of behavior can lead to financial problems. Today, despite receiving high prices for their products, farmers and ranchers facing financial difficulty continue to engage Kroos in reversing a cycle of unprofitability.

“I’m still busy; I’m still working with farmers and ranchers even though they’re receiving high prices for cattle and crops,” he says. “Input costs like feed expenses are skyrocketing. Yet profitability is still possible.”

Kroos teaches students and clients how to kick the habit of outspending production income. Those who do, attain business prosperity.

As one example, Kroos points to a client -- a ranching family -- who for two decades had an unbroken span of profitability.

“They’ve gone through drought; they’ve experienced tough cattle markets and other adversities,” he says. “Yet, every year they earn a significant profit on their ranch. They’re able to do it because they identify their level of desired profit at the start of the year. They then monitor and control costs throughout the year to ensure they indeed attain the desired amount of profit.”

When teaching and consulting, Kroos outlines six points that can help farmers and ranchers achieve sustained profitability.

1. Change the profit formula.

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Weather Trumps Demand