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Growth Takes Water & Time

Updated: May 28


A few years ago, we invested in a piece of land for a pecan orchard. The ground had to be prepped, and the trees bought and planted. Fertilizing and pest control is an annual cost. For water, we needed a deep well and piping. Tying up the land also means no rental income.

This pecan orchard has been a three-year investment. Having pecans to sell is likely four years away. Understanding that there would be a seven-year period between investment and return on investment made this a serious undertaking!

Great farmers understand expectant waiting. They plow, sow, fertilize, water, and wait. They understand the need for having enough resources to endure until harvest time.

A business encounters these three challenges in allocating scarce resources.


The challenge of earning back capital expenditures

To serve your customers, investment is often required. The challenge is to endure long enough to earn that money back. The money you invest in a tractor, fertilizer, seed, and sprays will need to be earned back. The challenge is to use discipline in making suitable investments.

The challenge of your operating cycle

Your operating cycle involves how many days you have to pay back your suppliers and vendors versus how quickly you get to collect from your customers. The shorter this cycle, the greater is your probability of success. Ideally, you want your money to go in faster than it goes out. This is referred to as a positive operating cycle.


A food vendor must invest in a fleet of trucks to win a contract with a large customer. It will take seven years before the vendor will make enough profit to pay for the investment.


This discipline is often called a "hurdle rate." The hurdle rate answers the question, "How long before I recoup my investment?" Knowing the hurdle rate helps you make wise decisions.


The longer the time to earn back your investment, the higher the risk.


An investment that won't get paid back for seven years has a higher risk than one that can be paid back in one or two years.

Seasonality

The more seasonal your business is, the more capacity is required to sustain it. There must be enough resources to maintain capacity in-between peaks.



To help you clarify the values that drive your business, I have designed an assessment, Business Impact Plan: Seed, Sunshine, Soil, Harvest. It has a series of questions that you can ask yourself and get your employees and team members to answer. It is free, my gift to you.




Harry T. Jones


P.S. Don't forget to get my free resource, "Business Impact Plan: Seed, Sunshine, Soil, Harvest" CLICK HERE

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