Growing up, I had an uncle that was a farmer. As I got to working age (that is defined a little differently depending on your age/location), I would go visit them for 2-3 weeks during the summer.
This wasn’t any ole visit… this was harvest time.
Harvest was a great opportunity for me to earn a lot of cash in a little period of time, as you’d work sun up to sun down in the middle of the summer. As a kid, the idea of earning that much in such a short period of time was a no-brainer.
Harvest season is when farmers gather mature crops to be sold or stored.
Each year I went, I got a different job. One year, I drove a tractor back and forth, back and forth, to pack down the crop they were storing. I was told I was compacting it so they could put more on the pile, but I always wondered if they were just putting the “city boy” on a task to get him out of their hair.
I’d sit in the tractor cab for 10-12 hour days, eating my packed lunch while still driving… back and forth, back and forth.
For me, that harvest period was farming. But the reality was, there was a whole cycle I was ignorant of. There was the planting, fertilizing, weeding, watering, crop rotation, equipment maintenance, to name a few.
If any one of the steps before was lackluster, the harvest wouldn’t be as plentiful.
As I thought back on this time, the parallels to business were unmistakable.
The harvest is the revenue coming in. It’s the profits flowing… it’s the wad of cash you lay on the floor and do snow angels in.
But what about those stages before?
In farming, there are 3 stages:
- Preparation
- Maintenance
- Harvest
These stages correlate very well with the stages of business.
- Preparation: strategic & capital planning, sales & marketing, and new products & services
- Maintenance: AP & AR management, invoicing policies, inventory management
- Harvest: cash coming in
Let’s break this down.
Maintenance
I know, maintenance isn’t first in the sequence, but it’s what us CFO’s tend to focus the most on.
As a CFO, my tendency used to be:
- Getting the money in the door
- Watching financial results like a hawk
The problem is, these items are a reflection of what you have, not what you could have.
Like in farming, the maintenance portion takes up the majority of the time.
It’s the consistency in this step that’s key.
If you quit watering the crops, they die.
If you miss your pesticide window, they die.
If you fail to control the weeds, crops can be crowded out.
In the same way with businesses, when you fail to maintain Accounts Receivable and collections, you’re left with uncollectible cash (ie. product you gave away). When you ignore inventory, you run out of product at peak selling time.
But the opposite is also true: if you spend all your time looking at these maintenance items, the preparation stuff gets missed.
So, as we dig into the maintenance side, we'll do it from the lens of creating killer systems so you limit the scope and leave room for focus on preparation and harvest.
Preparation
Yes, maintenance is important. But without a good foundation, maintenance is just lipstick on a pig. Sure, you’re operating well… but what happens when the pipeline dries up?
In farming, you have to prepare for the next season. It’s finding and buying the right seed, preparing the ground, and replacing old (and unreliable) equipment.
The parallels to business are stark:
Buying the seed = sales
Preparing the ground = marketing
Replacing equipment = strategic & capital planning
When you fertilize, you stop weeds from even coming up, the crops flourish.
When you buy and maintain the equipment, you avoid missed days that could result in less-than-ideal outcomes.
Good preparation doesn’t mean maintenance isn’t needed, but it makes maintenance easier.
The right customers make collections more pleasant.
The right processes make the job less stressful.
Regular review of financials makes you less reactive.
There are many reasons for failing at preparation, but to me the most common reasons fall into a few categories:
- You’re too busy
- You hate the preparation
- You’re always in reactive mode
Since preparation is rarely urgent, it takes intentional effort to prioritize is.
As we discuss this more in-depth in future issues, we'll address how we can make it a priority.
Harvest
What you get at harvest is a function of the preparation and maintenance work you do.
In farming, harvest is a time for execution. Extract the crop and take the necessary steps to sell it for as much as possible.
In business, it’s the collection of cash. Once you collect the cash, you have to ask what to do with it.
We’ve talked about this a lot in addressing owner’s draws and how to manage excess cash, so feel free to jump over there to hear my philosophies on how to deploy capital.
In discussing the harvest, we'll address how to harvest in a way that prepares you for the next cycle of preparation and maintenance.
Principle in Action
Now that we understand the 3 stages of cash flow, we need to ask: are we treating each with the respect (and time) they deserve?
When you neglect one of the states, it impacts teh other stages. It’s important that you balance your focus on each stage.
- Preparation: are you setting time aside to plan, market, and execute on sales?
- Maintenance: do you have cash management policies that help you manage where you are and where you’re going?
- Harvest: are you extracting all the value you can?
To make this actionable, we need to make sure we have an action plan for each stage.
Over the next few months, I’m going to tackle each of these elements. While we’ve hit on a few of these items in the past, I’m going to try and take a wider view and show you how all of these connect.
For today, we’ll leave it here for you to noodle on.
Talk to you next week,
- Kurtis
